The Consumer Price Index hit a two year in October, dropping below 2%.

The headline CPI slowed to 1.9% in October, from 2.6% in September, due to an 8.0% decline in the price of gasoline. The drop was much larger than economists expected, they saw just a 0.1% slide.

Inflation is now below the mid-point of the Bank of Canada’s target band for the first time since the July 1999.

Core inflation was unchanged for the month at 2.2%, its lowest level in seven months. This result was in line with expectations.

“With global economic conditions souring and energy prices tumbling, inflation has become little more than a blip on central banks’ radar screens, and this morning’s Canadian consumer price report for October will certainly be no exception,” say TD Bank economists.

“With not even a whiff of upward pressure on consumer prices in the air, today’s data can only help cement the Bank of Canada’s view that inflation has been knocked out cold — and is unlikely to start to pull itself up until a convincing recovery in the economy has been underway for some time.” As a result, it says there is nothing standing in the way of another 50 basis point interest rate cut next Tuesday.

CIBC World Markets agrees that there’s room for another 50 bps on Tuesday. “Today’s benign inflation news is very timely, with the Bank of Canada running out of data reports before its scheduled rate announcement. While the steep plunge in headline prices will have little policy repercussions, the gradual easing in the core (combined with expectations for further improvement) leaves the door wide open for a half-point cut. Beyond that, the outlook for additional monetary easing will be largely dependent upon whether we see the much-anticipated bloodletting in Canada’s labour market.”

BMO Nesbitt Burns says, “With the economy slowing and industrial capacity opening up, inflation will remain well contained in Canada and poses no barrier to the Bank of Canada on the rate cutting front.”