By Ismail Shakil and Julie Gordon
OTTAWA (Reuters) -Canada's annual inflation rate held steady in October, matching analyst forecasts, while core inflation measures were mixed, official data showed on Wednesday, leaving markets betting on a smaller rate hike at the central bank's next session.
The consumer price index rose 6.9% in October, in line with analyst calls, and was up 0.7% on a month-over-month basis, also matching forecasts, Statistics Canada said. Excluding food and energy, prices rose 5.3%, easing from 5.4% in September.
The Bank of Canada's core measures of inflation, CPI median and CPI trim, both accelerated slightly with the average of the two at 5.1% compared with 5.0% in September. CPI-common has become less reliable due to large revisions, the bank has said.
"From a top line perspective, today's CPI report does little to solve the internal and external debate over December's BoC meeting," said Simon Harvey, head of FX analysis for Monex Europe and Canada.
"On the one hand, headline inflation remained firm at 6.9% and the BoC's measure of core inflation ticked up on average in October," he said. "On the other hand, alternative measures of core inflation measures... have fallen."
The Bank of Canada has hiked its benchmark rate by 350 basis points since March to 3.75%, one of its fastest tightening cycles ever. Money markets are betting on a 25-bp increase on Dec. 7, with a roughly 35% chance of a larger move.
While Governor Tiff Macklem had left the door open to another oversized increase, the inflation data was seen supporting a downshift to a standard 25-bp increase, with the option of more hikes into next year.
"I don't think he'll come out strongly saying that this is the end in December, but I'd lean more toward a 25 (basis point increase) at this point," said Derek Holt, vice president of Capital Markets Economics at Scotiabank.
Higher interest rates have pushed up lending costs in Canada, with mortgage interest costs rising 11.4% in October, the largest gain since February 1991. That, coupled with higher rents, helped edge the shelter component up.
Food price gains, meanwhile, eased slightly to 10.1% from 10.3% in September, as meat, fruit and vegetables cost increases slowed. Gasoline prices rose 17.8% compared with 13.2% in September.
The Canadian dollar was trading 0.1% higher at 1.3270 to the greenback, or 75.36 U.S. cents, after giving back some of its earlier gains.