Canada's annual inflation rate fell more than expected to 1.6% in September, mainly due to cheaper gasoline prices, but indicators of underlying price pressures remained steady, according to data released on Tuesday.
Analysts polled by Reuters expected the inflation rate to decline to 1.8% from 2.0% in August. On a monthly basis, the consumer price index decreased 0.4%, compared to expectations for a decrease of 0.2%.
In the last major economic report released before the Bank of Canada's interest rate announcement on October 23, data from Statistics Canada showed a decline in headline inflation largely driven by a 10.7% drop in gasoline prices.
This was the fastest decline in gasoline prices since July 2023 and was due to lower crude oil prices amid concerns over weaker economic growth, as well as lower costs related to the shift to a winter mix, the statistics agency reported.
Weak energy prices in the past two months have caused headline inflation to slow to the BoC's 2% target paars faster than the central bank expected. Coupled with weak third-quarter economic growth expectations, it has sparked the possibility of an interest rate cut of 50 basis points, larger than usual.
The central bank has cut its policy rate by 25 basis points at each of its three recent policy meetings, and the market sees an almost 68% chance of a 50 basis point interest rate cut next week.
The Canadian dollar fell to a 10-week low after the inflation data was released, to trade at 1.3833 against the US dollar, or 72.29 US cents.
However, excluding petrol prices, the inflation rate remained at 2.2% in September.
The central bank's preferred core inflation measures, CPI-median and CPI-trim, were also unchanged. CPI-median or the value in the middle of the set of price changes in a month remained at 2.3%, and CPI-trim which excludes the most extreme price changes remained at 2.4%.
In September, the usually seasonal drop in transport prices also caused headline inflation to decline, according to Statscan.
House price inflation, which the central bank has identified as one of the areas it wants to see slow, was at 5.0% compared to 5.3% in August.
Prices of goods fell 1.0% annually in September, while prices of services rose 4.0%.
