Canada’s rate of inflation unexpectedly slowed, with core measures showing some improvements, leaving room for the central bank to keep interest rates unchanged next week.

The consumer price index rose 3.8 per cent in September from a year ago, following a four per cent gain in August, Statistics Canada reported Tuesday in Ottawa. That’s slower than the median estimate of four per cent in a Bloomberg survey of economists. On a monthly basis, the index fell 0.1 per cent, versus expectations for an increase of 0.1 per cent.

Two key yearly inflation measures that are tracked closely by the Bank of Canada and filter out components with more volatile price fluctuations — the so-called trim and median core rates — decreased, averaging 3.8 per cent, from four per cent a month earlier. That’s also slower than the 3.9 per cent pace expected by economists.

A three-month moving average of underlying price pressures that Governor Tiff Macklem has flagged as key to policymakers’ thinking fell to an annualized pace of 3.67 per cent, from 4.29 per cent a month earlier, according to Bloomberg calculations.

Tuesday’s numbers ended a two-month string of accelerating headline inflation, and will likely give policymakers more confidence price gains will continue decelerating in coming months after the temporary setback in July and August. Earlier this week, the bank’s own surveys showed that both businesses and consumers believe the full impact of rate hikes is still to be felt, though inflation expectations remain elevated.

U.S. Federal Reserve policymakers are also grappling with a public view that inflation will stay well above the central bank’s target. Americans expect prices to climb at a 3.8 per cent rate over the next year, the highest in five months, according to a survey reading from the University of Michigan. The U.S. inflation rate was 3.7 per cent in September, above its level in June and July.

Last week, Macklem said Canadian officials remain concerned that they aren’t seeing “downward momentum” in core measures, and they’re focused on analyzing how a slowing economy will influence prices. “It’s not so much about where inflation is now, it’s about where inflation’s going to be,” Macklem said.

September’s inflation figures will likely alleviate some of those concerns. This is the last inflation report before the Bank of Canada’s next rate decision on Oct. 25, when the majority of economists in a Bloomberg survey expect Macklem and his governing council to hold borrowing costs steady at five per cent for the second straight meeting.

In August, inflation accelerated, with gains largely driven by higher gasoline prices, and core rates also increased.

In September, the year-over-year deceleration in headline inflation was broad-based, stemming from lower prices for some travel-related services, durable goods and groceries. On a monthly basis, the slowdown was mainly driven by lower month-over-month gasoline prices.

Goods inflation fell 0.3 per cent from a month earlier, the first time since December 2022, and grew 3.6 per cent from a year ago, versus 3.7 per cent in August. Services inflation was unchanged from August, the first time it hasn’t grown on a monthly basis since November 2021, while the rate slowed to 3.9 per cent on a yearly basis, from 4.3 per cent in August.

Regionally, prices rose at a slower pace on a yearly basis compared with August in six provinces, except Newfoundland and Labrador, Nova Scotia, New Brunswick and Quebec.