Inflation rate eases to 2.6%

Canada's annual inflation rate eased to 2.6 per cent in October, down from the 12-month increase of 3.4 per cent seen in September.

October's slowdown was primarily a result of slower price increases for gasoline, but prices for food exerted stronger upward pressure on consumer prices, Statistics Canada said Friday.

For the month of October alone, on a seasonally unadjusted basis, consumer prices fell one per cent from September to October, the largest drop since June 1959. The seasonally adjusted figure is a drop of 0.5 per cent.

Gasoline prices were a big factor in both the 12-month inflation rate and the one-month rate. From October 2007 to October 2008, gasoline prices increased 13.3 per cent — compared with a 12-month change of 26.5 per cent in September.

However, in October alone, gasoline prices fell 13.4 per cent, as worries over a global economic downturn sent energy prices sharply lower.

The Bank of Canada's core rate of inflation — which factors out several volatile components — advanced 1.7 per cent over the 12 months to October, identical to the rate posted in the previous two periods.

The seasonally adjusted monthly core index posted no growth from September to October, after increasing 0.2 per cent from August to September.

Below expectations

The 12-month inflation rate seen for October was less than the 3.1 per cent annual increase that economists had been expecting to see.

The softer-than-expected inflation report is expected to mean the Bank of Canada will be clear to keep reducing interest rates without fear of inflationary pressures.

"Today’s report reinforces the point that Canadian inflation is melting in real time," said BMO Capital Markets economist Douglas Porter.

"With notable weakness in a variety of core components adding to the deep dive in gasoline, the Bank of Canada has the all-clear signal to continue cutting rates," he said in a commentary.