Slowdown in inflation supports interest rate pause next week, economists say

Canada's inflation rate edged down to 3.8 per cent last month as price pressures eased across the economy, setting the stage for the Bank of Canada to hold its key interest rate steady next week, economists say.

Canada's inflation rate edged down to 3.8 per cent last month as price pressures eased across the economy, setting the stage for the Bank of Canada to hold its key interest rate steady next week, economists say.

Statistics Canada released its latest consumer price index report on Tuesday, which showed inflation slowing once more in September after rising to four per cent in August.

The data was a welcome surprise for economists.

The federal agency said grocery prices were up 5.8 per cent year-over-year in September compared with 6.9 per cent in August.

The report shows the main upward pressures on annual inflation last month were mortgage interest costs, rent, food purchased from restaurants, gasoline and electricity. Meanwhile, lower prices for telephone services, natural gas, air transportation, childcare and housekeeping services and furniture helped pull inflation down.

Economists reacting to the latest inflation data say that it adds more evidence that the Bank of Canada, which is gearing up for a rate decision on Oct. 25, can remain on the sidelines and wait for inflation to continue falling.

"I think the Bank of Canada will smile a little bit after this report. It takes the pressure off them heading into next week's meeting, and they should very much be on hold when they make their decision," said Benjamin Reitzes, BMO's managing director of Canadian rates and macro strategist.