Annual pace of inflation slows to 2.2 per cent in September: StatsCan

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Shoppers ride an escalator in the Simons store at Londonderry Mall in Edmonton on Saturday

The consumer price index recorded an annual pace of 2.2 percent, the lowest in four months and a drop from 2.8 percent in August, Statistics Canada said Friday from Ottawa.

Statscan's data showed that gasoline prices increased by 12.0 percent over September 2017, down from the 19.9 percent year-over-year jump in August.

The deceleration in the headline rate was mainly driven by transportation prices, which alleviated to 3.9 percent from August's 7.2 percent.

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The transportation index, which includes gasoline, was up 3.9 percent in September compared with a 7.2-percent move in August as gasoline prices last month went up 12 percent compared with a 19.9-percent increase in August.

September marked the eighth consecutive month that the overall inflation rate has exceeded the Bank of Canada's 2.0 per cent target.

In its most recent forecasts released in July, the central bank estimated inflation would average 2.5 percent in the third quarter - which ends in September - before returning back to near the 2 percent target by 2019.

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"The biggest factor in last month's swoon was a 16.6-per-cent plunge in airfares, the largest monthly drop in 30 years, which nearly precisely reversed July's 16.3-per-cent spike-which had been the biggest monthly rise in, yes, 30 years", said BMO chief economist Douglas Porter. The 2 percent core rate is consistent with an economy at full capacity - but not one that is overheating and that should give the Bank of Canada scope to proceed with gradual interest-rate increases. Alcoholic beverages and tobacco products were up 4.4 per cent.

Andrew Grantham, senior economist at CIBC Capital Markets, said that while headline inflation may have missed consensus expectations by a wide mark, that won't prevent policymakers from hiking interest rates, which sit at 1.5 per cent, by a quarter of a percentage point again next week.

In a separate report, Statistics Canada said retail sales fell 0.1 per cent in August to $50.8 billion as sales moved lower in seven of 11 of the subsectors tracked by the agency.

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Sales at gasoline stations were down 2.0 percent, while clothing and clothing accessories stores fell 1.2 percent. Motor vehicle and parts dealers saw sales increase 0.8 per cent. Adjusted for seasonal patterns, prices dropped 0.1 percent sequentially.

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