OTTAWA - Canada's annual inflation rate fell to virtually zero last month as the lower cost of energy and other activities drove overall prices down.

Statistics Canada said Thursday overall annual inflation stood at 0.1 per cent in May, falling from 0.4 per cent the previous month.

That is the lowest Canadian inflation has been since November 1994, when it fell to minus 0.1 per cent.

Soaring oil and gasoline prices at this point last year were the main contributors to falling inflation, and will be until July, when world oil peaked at over US$145 a barrel.

Gasoline prices were 25.1 per cent higher last month than in May 2008, driving the cost of transportation down 8.2 per cent.

But excluding that component, inflation in Canada remains close to where the Bank of Canada would want it at 2.3 per cent. Core inflation, which excludes volatile items, stood precisely at the bank's two-per-cent target.

"The decline in the energy price index was due more to high prices in 2008 than to recent market developments," the agency said, pointing out that from April energy prices were actually 4.4 per cent lower.

And from April, overall prices were 0.7 per cent higher last month.

In fact, the agency noted that six of the eight components that go to make up the consumer price index were higher on an annual basis last month, led by the cost of food, which continues to remain the leading force behind whatever remains of inflation in Canada.

Food costs rose 6.4 per cent last month from a year ago, led by a 16.4 per cent increase in fresh vegetables, a 13.9 per cent increase in fresh fruit and 14 per cent jump in non-alcoholic beverages.

As well, the cost of clothing and shoes, health and personal care, recreation, alcohol and tobacco, and household furnishings were all higher last month.

Shelter costs, due to lower mortgage interest costs, was the only other component to fall outright on an annual basis in May, dropping 0.2 per cent for the first time in seven years.

But the overall trend in prices in Canada, largely as a result of falling energy prices, is expected to continue to slide over the next few months.

The Bank of Canada forecasts inflation will fall below zero soon and will likely stay that way for much of the summer months.

Four provinces -- Prince Edward Island, Nova Scotia, New Brunswick and Alberta -- already have a negative annual inflation rate.