By Promit Mukherjee and Ismail Shakil

OTTAWA (Reuters) – Canada's annual inflation rate unexpectedly dropped to 1.9% in November, driven by a broad-based slowdown in prices. Meanwhile, the consumer price index remained unchanged on a monthly basis, as reported on Tuesday.

Analysts surveyed by Reuters had anticipated that inflation would hold steady at the 2% recorded in October, and that the consumer price index would rise by 0.1% month over month.

The Canadian central bank's preferred core inflation measures, CPI-median and CPI-trim, remained steady, although the previous month's data was revised upwards.

• CPI-median: unchanged at 2.6%.
• CPI-trim: steady at 2.7%.

Economists pointed out that persistent strength in core measures could pose challenges for the Bank of Canada, which has indicated the need to ease rates to support the economy, citing consistent drops in inflation.

Douglas Porter, chief economist at BMO Capital Markets, noted, "While the Bank of Canada will welcome the renewed dip below 2% for headline inflation, they would prefer that the sticky core trends stayed away this holiday season."

The bank anticipates core inflation to average 2.3% for the fourth quarter, though it is currently trending at approximately 2.7%.

Tuesday's data is the first of two inflation reports that the BoC will evaluate before its next rate decision on Jan. 29.

The central bank has cut interest rates by 50 basis points at each of its last two policy announcements, resulting in a total reduction in borrowing costs of 175 basis points since June. This has assisted in maintaining consumer price rises within its target range of 1-3% for several months.

BoC Governor Tiff Macklem suggested last week that any further rate cuts would be more gradual. Currency markets currently predict a 55% chance of an additional 25 basis points cut in January.

The Canadian dollar traded down 0.27% to 1.4280 against the US dollar, equivalent to 70.03 U.S. cents.

Key contributors to the decline in headline inflation included:
– A reduction in travel tour prices, although the cost of travel services fell less in November than in October.
– Increased hotel prices, coinciding with notable concerts in the month.
– Black Friday discounts by retailers also contributed to lower inflation figures, according to Statscan.
– Mortgage interest cost inflation continued a 15-month deceleration, while rents rose by 7.7% from October's 7.3%.
– Grocery prices saw an annual rise of 2.6% in November, down from 2.7% in the previous month.