Canada's annual inflation rate hit the central bank's target in August when it fell to 2%, the lowest level since February 2021, according to data released on Tuesday.
The closely watched core price measure also fell to a 40-month low while month-on-month consumer prices decreased by 0.2%, Statistics Canada reported.
Analysts polled by Reuters had forecast the consumer price index (CPI) to decline to 2.1% from 2.5% in July on an annual basis, and expected it to be unchanged on a monthly basis.
Declining price pressures were helped mainly by falling prices for petrol, telephone services and clothing and footwear, while housing costs, mortgages and rents continued to decline at a slower pace as rents continued to rise relentlessly.
In announcing the Bank of Canada's (BoC's) monetary policy decision earlier this month, Governor Tiff Macklem said the bank needs to be increasingly cautious of the risk that inflation could fall below its target due to weak economic growth.
The BoC has cut its key policy rate three times in a row since June, cutting a total of 75 basis points to 4.25%.
Financial markets fully expect rate cuts of 25 basis points twice in the remainder of this year's monetary policy meeting, but economists say that the possibility of a major cut of 50 basis points this year is increasing.
The BoC previously forecast annual inflation to be at 2.6% this year and decline to 2.4% next year before reaching the midpoint of the 1-3% target range in 2026.
The median CPI decreased to 2.3% in August from 2.4% in July on an annualized basis. CPI-trim decreased to 2.4% from 2.7%. Petrol prices, which contributed the most to the decline in inflation, fell by 5.1% while clothing and footwear fell by 4.4%.
The cost of living, which accounts for nearly 30% of the CPI, rose by 5.2% in August, compared to 5.7% in July, mainly due to rents rising by 8.9% from 8.5% in July.
