A person pushes a shopping cart through the produce section of a grocery store in Toronto, Ontario, Canada November 22, 2022. REUTERS/Carlos Osorio

By Promit Mukherjee

OTTAWA (Reuters) -Canada's annual inflation rate in October eased to 2.2% as gasoline prices dropped, food prices eased and mortgage interest costs came down below the 3% mark, data showed on Monday.

The removal of a carbon levy on gasoline this year continued to depress yearly price increases for the past few months. Barring the carbon levy removal, the annual consumer price index rose by 2.7% in October from 2.9% in September, Statistics Canada said.

Analysts polled by Reuters had forecast the inflation to be at 2.1% for October, down from 2.4% in September. On a monthly basis, they forecast inflation to be 0.2%.

On a monthly basis, CPI inflation was in line with forecasts, StatsCan data showed.

The Bank of Canada has cited stable inflation as one of the prime reasons to signal a halt in rate cuts last month. A further easing in October is likely to bolster its confidence to stand pat on the current policy rate of 2.25% next month.

A bigger monthly decline in the price of gasoline in October brought down the annual price drop of the fuel to 9.4% in October compared with a drop of 4.1% in September.

FOOD PRICES ROSE 3.4% IN OCTOBER

Another contributor to the slower increase in inflation was food prices, which rose 3.4% in October, down from a 4.0% increase in September.

Despite the deceleration, prices remained elevated and have exceeded overall inflation for nine consecutive months, StatsCan said.

Mortgage interest costs, a part of shelter inflation, increased at an annual pace of 2.9% in October. This was the first time in more than three years that they came down below 3%.

However, rent inflation, another part of shelter inflation, rose above 5%, clocking an acceleration for two months in a row.

Due to volatility in prices and the government's tax breaks, the BoC and economists have tracked the measures of core inflation to gauge price trends.

One of the core measures of inflation, the CPI-median, or the centermost component of the CPI basket, was at 2.9% in October, down from a downwardly revised 3.1% in September.

The other core measure, CPI-trim, which excludes the most extreme price changes, edged down to 3.0% in October from 3.1% in September.

"It would take a longer period of easing price pressures, combined with indications of economic growth deteriorating again, to bring the Bank of Canada back off the sidelines," Andrew Grantham, a senior economist at CIBC Capital Markets wrote in a note.

The Canadian dollar weakened a bit after the data and was trading down 0.11% to 1.4035 against the U.S. dollar, or 71.25 U.S. cents. Bond yields for the two-year government bonds fell and were down 0.3 basis points to 2.475%.

Price increases in October were mainly driven by cellular plans and insurance costs.

(Reporting by Promit Mukherjee; Editing by Dale Smith, Ed Osmond and Chizu Nomiyama )