The Consumer Price Index came in weaker in September. The CPI slipped to 2.6% down from 2.8% in August. The headline was up 0.3% in the month, a little stronger than expected.

The fall in the annualized rate is due to the fact that gasoline prices also soared a year ago, and because the latest increase was partially offset by lower natural gas costs, says BMO Nesbitt Burns.

“With economic growth in a downward spiral, is anybody worrying about inflation developments these days?” asks CIBC World Markets. “Certainly not the Bank of Canada, whose next rate move will be driven not by movements in the CPI, but by gyrations in a host of key demand indicators.” TD Bank economists says the report will go down as the non-event of the week.

CIBC says the volatile energy component did much of the damage in September. “A 7.6% spike in gasoline prices fueled energy’s 2.7% monthly increase. Despite the wild swings in monthly energy prices, this component has been creating less and less of a distortion in general CPI trends.”

Food prices are still up strongly too. Core inflation was stable in September, as expected. CPIX rose 0.2% in the month and 2.3% on an annual rate.

“While the performance of year-over-year headline and core CPI mildly disappointed consensus expectations, there’s little doubt the trend in consumer inflation is a friendly one. With the gasoline roller coaster in steep descent, and natural gas largely dormant, October energy prices should undo much of the rise witnessed in today’s report,” says CIBC.

“Meanwhile, a growing capacity glut and steadily rising layoff toll provide the foundation for a gradual improvement in underlying inflation. Look for headline and core prices to continue to converge in the final months of the year, with both measures still having 2% in their sights.”

TD notes that Bank of Canada senior deputy governor Malcolm Knight stated that core inflation is poised to fall below the 2% threshold in the months ahead, “A clear-cut signal that further interest-rate cuts are in store. Notably, a 50 basis-point cut at next Tuesday’s official announcement date is already in the bag.”

RBC DS Capital Markets Research sees a 50 bps cut too, as does BMO Nesbitt Burns. CIBC is more cautious, noting that the central bank will be deciding between 25 bps and 50 bps based on manufacturing shipments, merchandise trade and retail sales reports. But it says, “While manufacturing shipments did post a surprising gain, we’ll need to see substantial strength in the remaining reports before we back away from our call for a Fed-matching half-point cut.”