Canada’s annual inflation rate crept up to 1.6% in December, from 1.4% in November, pushed again by higher home replacement costs, especially in Alberta, Statistics Canada reported today.

(Please note that a correction has been made in the Consumer Price Index that was released by Statistics Canada earlier today. Mortgage interest cost, has been revised higher to a gain of 4.9%.)

Drivers also paid slightly more for gasoline at the pump, although energy costs were moderated by a drop in natural gas prices caused by the unseasonably warm winter.

The main driver of inflation in December’s was a second consecutive 8.2% monthly increase in homeowners’ replacement cost – representing the worn-out structural portion of housing. This index has been rising by better than 8% a month since last August.

For 2006 as a whole, the inflation rate was 2%.

Core inflation, used by the Bank of Canada to monitor its inflation-control target, rose by 2% in December, compared with 2.2% the previous month.

The increase in homeowner replacement costs was driven by the rising demand for new homes.

In booming Alberta, replacement costs soared 43.1% in December and were the main factor behind the rise in this index at the national level. Costs rose 10.3% in Saskatchewan and 6.8% in Manitoba.

Mortgage interest cost, on the rise since early 2006, continued its upward movement with a 4.9% gain.

Electricity prices rose as well, led by a 23.7% jump in Alberta.

Higher prices for restaurant meals and higher tobacco taxes in some provinces also helped push inflation.

On the other hand, natural gas prices fell for the sixth consecutive month amid milder temperatures.

The cost of buying and leasing cars and trucks fell amid tough competition among sellers.

Computer equipment and supplies and men’s and women’s clothing were also cheaper.