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A customer grabs cans of Campbell's Soup from a shelf at a grocery store in Phoenix, Arizona.JOSHUA LOTT

Canada's annual inflation rate slowed more than expected in November from a two-year high in October, providing relief for the central bank as it seeks to keep interest rates low to support the still-fragile recovery.

The consumer price index edged up 0.1 per cent in the month for an annual rate of 2 per cent, Statistics Canada said Tuesday. That was down from 2.4 per cent annual inflation in the previous month and below the market forecast of 2.2 per cent, pushing the Canadian dollar to a session low.

Statistic Canada attributed the year-over-year deceleration to energy, food and clothing prices.

The core rate most closely watched by the Bank of Canada was unchanged in the month and rose 1.4 per cent on the year, compared with 1.8 per cent in October.

The results supported the view that the central bank, which targets 2 per cent inflation, will hold rates steady into early 2011.

"Essentially what this report does is reverses any concern that may have built up a month ago," said Doug Porter, deputy chief economist at BMO Capital Markets. "It was quite muted across the board and we saw broad-based pullbacks in both headline and core inflation,"

The bank kept interest rates on hold at 1 per cent this month for the second consecutive time after raising borrowing costs three times between June and September.

The Canadian dollar fell to a session low after the report at $1.0205 to the U.S. dollar, or 97.99 (U.S.) cents, from $1.0190 to the U.S. dollar, or 98.14 (U.S.) cents, just prior to the data.

Canadian government bond prices rose across the curve.

Analysts surveyed by Reuters earlier this month predicted, on average, that the central bank would not hike rates again until the second quarter of next year.

Markets were pricing in a 89.3 per cent probability of rates staying on hold in January, up slightly from 89.1 per cent prior to the report, according to overnight index swaps tracked by Reuters.

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