Canada's inflation rate edges up to 1.9%

Canada's annual inflation rate rose to 1.9 per cent in September on higher energy and car prices, Statistics Canada said Friday.

That was a jump of two-tenths of a percentage point from August's rate and was the highest inflation rate since January.

Energy was5.6 per cent more expensive than it was a year earlier.Shelter costs also rose on the heels ofrent increases and higher natural gas and electricity prices.

Car pricesjumped five per cent in the last year. "Vehicle manufacturers continued to offer incentives to consumers, but to a lesser extent than they did at the same period a year earlier," Statistics Canada said.

The cost ofgasoline and car insurance premiums each rose by 3.1 per cent.

Seven of the eight major components of the consumer price index (CPI) were up over last year's levels. Only clothing and footwear costs were cheaper.

Food prices were up 2.1 per cent year-over-year last month, comparedwith a 1.6 per cent rise in August.Statistics Canada blamed higher restaurant prices and said prices also rose for meat, sugar, vegetables and dairy products.

Prices rose in every province comparedwith last year, led byOntario's 2.9 per cent rate.

Core rate eases

The core inflation rate which excludes the most volatile parts ofthe CPI eased from 1.6 per cent annually to 1.5 per cent.

Some analysts expect the core rate to continue to drop because of excess slack in the economy and slower growth.TD expectscore inflation to fall to 1.3 per cent by the first quarter of next year well below the Bank of Canada's two per cent target.

"In turn, this should leave the Bank of Canada comfortably on the sideline until the spring of next year," said TD economist Diana Petramala.

On a seasonally adjusted basis, core prices rose a tenth of a percentage point from August to September.

For the third quarter as a whole,core inflation was1.6 per cent. The Bank of Canada expects no change in that rate in the fourth quarter.

Overall inflation in September was largely in line with economists' expectations. The Canadian dollaredged down 0.04 cents to 97.40 cents US by 1:30 p.m. ET.

Analysts said this inflation report supports the view thatfurtherincreases ininterest ratesareat least several months away.

"Inflation remains tame in Canada, which will allow the Bank of Canada to stay on hold well into 2011," said BMO Capital Markets economist Robert Kavcic in a morning commentary.