Canada’s annual inflation rate unexpectedly slipped to 2.4% in October as gasoline prices fell from September levels, Statistics Canada reported today.

The inflation rate was down a 10th of a percentage point from the month before.

Most analysts had expected the annual rate of the cost of living to rise.

StatsCan said consumer prices fell 0.3% from September to October as prices at the gasoline pumps dropped by 3.3%.

Cheaper hotel and motel prices and lower prices for women’s clothing also helped lower the CPI from September’s level.

The core rate of inflation, which excludes the most volatile items in the consumer basket, slipped to 1.8% from 2% in September, thanks to lower car prices. That’s the first time the core rate has been below the Bank of Canada’s 2% target rate since June 2006.

Analysts said that drop will give the Bank of Canada the flexibility to start dropping interest rates.

“It’s looking more likely that Bank of Canada governor David Dodge’s swan song will be rate cuts, reflecting lower-than-projected inflation, credit concerns … and economic growth risks,” said BMO Capital Markets economist Michael Gregory in a morning commentary.

Alberta again had the country’s highest inflation rate, at 5%. Saskatchewan (up 3.6%), New Brunswick (up 3.3%) and Prince Edward Island (up 3.1%) also had annual CPI increases that topped the national average.

On a year-over-year basis, gasoline prices provided much of the upward pressure.

Despite the drop in pump prices between September and October, gas prices were still 13.5% higher than a year earlier.

It also cost more to be a homeowner. Mortgage interest costs rose 6.7% in the last year — a 16-year high. Statistics Canada said that was mainly because of higher new housing prices rather than higher mortgage rates.

Canadians also paid more for property taxes and restaurant meals than they did a year earlier. But they saw a 2.4% drop in the price of passenger vehicles as carmakers boosted their discounts on 2007 models.