Canada’s annual inflation rate dropped to 2.1% in December as the price of gasoline fell from November levels.

Statistics Canada said the goods and services in the sample consumer price index basket cost 0.2% less last month than it did in November, thanks to a drop of more than 5% in pump prices.

December’s annual inflation rate came in slightly lower than economists had been expecting. They had predicted the annual rate to slip from November’s 2.4% rate to 2.2% or 2.3%.

Despite the one-month drop in gasoline costs, gas still exerted the most upward pressure on the annual increase in the cost of living. Gas prices were 12.1% higher in December than they were a year earlier.

The core inflation rate, which excludes the eight most volatile components like fruit, vegetables, gasoline, fuel oil and tobacco, edged up one-tenth of a percentage point to an annual rate of 1.7%.

For 2004 as a whole, StatsCan said consumers paid an average of 1.9% more than they did in 2003 for the goods and services included in the CPI basket. This was down substantially from the 2.8% annual average rise recorded in 2003.

For all of 2004, the average annual core inflation rate dropped to 1.5%, in line with the Bank of Canada’s latest estimate.

According to one analyst, there was nothing in the report to spur the Bank of Canada to raie interest rates when the next policy setting meeting takes place next Tuesday.

“This benign report will have no major impact on the Bank’s decision to stand pat on rates next week,” said Doug Porter, senior economist with BMO Nesbitt Burns, in a morning commentary.