Canada's annual inflation rate unexpectedly dropped by a tick to 1.9% in November, driven by a broad-based slowdown in prices, while the consumer price index was unchanged on a monthly basis, data showed on Tuesday.
Analysts polled by Reuters had forecast that inflation would hold steady at the 2% rate recorded in October and the consumer price index would rise 0.1% month over month.
The Canadian central bank's preferred measures of core inflation, CPI-median and CPI-trim, were unchanged, though the previous month's data were revised up by a notch.
CPI-median - or the value at the middle of the set of price changes in a month - remained at 2.6%, and CPI-trim - which excludes the most extreme price changes - stayed at 2.7%.
Economists noted that continued strength in core measures could be an issue for the Bank of Canada, which has said that with inflation coming down consistently, it was important for the bank to ease rates to prop up the economy.
"While the Bank of Canada will welcome the renewed dip below 2% for headline inflation, they would prefer that the sticky core trends stayed away this holiday season," said Douglas Porter, chief economist at BMO Capital Markets.
The bank has forecast core inflation to average at 2.3% for the fourth quarter but it is currently trending around 2.7% roughly.
Tuesday's data was the first of two inflation reports the BoC will get to assess before its next rate decision on Jan. 29.
The central bank has cut interest rates by 50 basis points at each of its last two policy announcements to bring the cumulative reduction in borrowing costs to 175 basis points since June.
This has helped restrict the rise in consumer prices to the mid-point of its desired target range of 1-3% for several months.
BoC Governor Tiff Macklem indicated last week that further rate cuts would be more gradual.
Currency market see a 55% chance of another cut of 25 basis points in January.
The Canadian dollar was trading down 0.27% to 1.4280 against the greenback, or 70.03 U.S. cents.
While prices for travel tours were a leading contributor in the small decline in headline inflation, cost of travel services declined less in November than in October, Statscan said, noting that higher hotel prices coincided with a series of high-profile concerts in the month.
Black Friday discounts by retailers in November also led to drop in overall inflation numbers, Statscan said.
Mortgage interest cost inflation, the other top contributor to the slower headline figure, continued its deceleration for 15 months in a row. Prices for rent accelerated in November by 7.7% compared with October's rise of 7.3%.
Grocery prices rose 2.6% on an annual basis in November, down from 2.7% in the month earlier.
