Canada’s annual rate of inflation dipped to 1.2% in January from 1.6% in December, Statistics Canada reported today.

Lower prices for gasoline and natural gas counteracted the continued impact of rising housing costs, the federal government agency said.

The core consumer price index, which the Bank of Canada uses to monitor its inflation-control target, rose by 2.1% between January 2006 and January 2007, following a 2% increase in December. The core inflation rate omits some volatile factors such as mortgage costs, some foods, gasoline and fuel oil, and indirect taxes.

Across the country, prices grew most quickly in Alberta. Prices there were up 3.9% on average in January 2007 compared with January 2006. However, that was a slower rate of growth than the 12-month gain of 4.7% posted in December 2006.

StatsCan said the rise in mortgage interest costs continued their upward climb begun in 2006, reaching an annual rate of 5.1% in January 2007. This was a slight increase from the 4.9% growth posted in December.

Homeowners’ replacement costs slowed. Prices rose only 7.6% between January 2006 and January 2007 after two consecutive months of 8.2% annual growth. The 12-month increase had reached a high of 8.8% in September and October 2006 before starting to ease.

Homeowners’ replacement costs, which represent the worn-out structural portion of housing, are estimated using new housing prices excluding land.