OTTAWA?Canada's annual inflation rate advanced in October on higher transportation and shelter costs, while the core rate rose at its slowest pace in over two years.

Food prices posted their first annual decline since 2000, on lower costs to purchase fresh fruit and vegetables.

Unlike in the U.S., inflation expectations in Canada remain tepid as the resource-reliant economy struggles to build momentum amid lower commodity prices and a disappointing performance in non-energy exports. Market watchers say the Bank of Canada either maintains its policy rate of 0.5% well into 2018 or opts to cut again to stoke growth.

The all-items consumer-price index in October rose 1.5% from a year earlier, Statistics Canada said Friday, compared with a 1.3% increase in September and a 1.1% advance in August. October's result matched market expectations, according to economists at Royal Bank of Canada.

October's annual core-inflation rate, which excludes volatile components such as some food and energy prices, climbed 1.7%, versus market expectations for a 1.8% advance. This marks the third straight month that core inflation rose less than 2%. The last time the core rate rose 1.7% or lower was in July, 2014.

On a month-over-month basis, headline and core consumer prices both rose 0.2% in October.

Jimmy Jean, economist at Desjardins Capital Markets in Montreal, said the CPI data came in on the soft side. "This is indicative of an economy that's still sluggish and with excess slack," he said. Canadian economic growth is expected to rebound in the third quarter after output shrank in the April-to-June period, although growth for all of 2016 is forecast to come in at the low 1% range.

Higher inflationhas been foremost on the minds of traders after Donald Trump won the U.S. presidential election Nov. 8. Bond yields have climbed on anticipation that Mr. Trump's agenda of tax cuts, infrastructure spending and wider deficits will fuel inflation. U.S. consumer prices rose in October from a year earlier, at the fastest rate in two years.

The Bank of Canada, which sets rate policy to hit and maintain 2% inflation, kept its policy rate unchanged at 0.5% last month although officials "actively discussed" providing further monetary stimulus. It said the amount of spare capacity, or slack, in the economy would put downward pressure on price increases and keep headline CPI close to 2% through 2017 and 2018.

Starting with the November CPI report, to be released Dec. 22, Statistics Canada will publish three new indicators meant to get a better gauge on underlying inflation. The Bank of Canada said the shift to multiple measures of core inflation?as part of the move to renew the central bank's inflation-targeting mandate?will help it manage the risks related to using any single indicator.

Prices rose in six of the eight major components tracked in headline inflation on a 12-month basis in October.

Statistics Canada said the transportation and shelter components contributed the most toward the annual increase.

The transportation index climbed 3% in the 12 months to October, mostly due to a 2.5% rise in gasoline prices. The cost of passenger vehicles advanced 4.4%.

Shelter costs advanced 1.9%. Homeowners' replacement cost, or the price associated with maintaining a residence at current market value, advanced 4.1%. The cost of electricity rose 5.3%.

Offsetting those advances was a 0.7% decline in food prices, or the first such drop since January, 2000. Food bought at grocery stores fell 2.1%, or the largest decline in nearly a quarter century; meanwhile, food purchased at restaurants advanced 2.6%.

On a seasonally-adjusted basis, consumer prices climbed 0.2% in October from the previous month.

Write to Paul Vieira at

(END) Dow Jones Newswires

November 18, 2016 10:05 ET (15:05 GMT)

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