The Bank of Canada has lowered its outlook on Canadian inflation and economic growth over the course of the next two years as higher interest rates and weaker demand are expected to ease cost pressures.

The Bank of Canada now projects the Canadian consumer price index (CPI) to come to an average of 4.1 per cent in 2023, down from a prior forecast of 4.6 per cent. Inflation is expected to continue declining in 2024 to 2.2 per cent, slightly lower than the 2.3 per cent the central bank previously forecast in its July Monetary Policy Report.

"The downward revisions are mainly due to lower gasoline prices and weaker demand," the Bank of Canada said in its October Monetary Policy Report.

"Easing global cost pressures, including lower-than-expected shipping costs, also contribute to reducing inflation in 2023. The weaker Canadian dollar partially offsets these cost pressures."

Statistics Canada said Canada's inflation rate in September was 6.9 per cent, edging down from seven per cent in August. Canada's CPI is expected to come to an average of 6.9 per cent this year, down from earlier forecasts of 7.2 per cent.

The Bank of Canada said in its latest Monetary Policy Report that inflation has declined from a peak of 8.1 per cent in June due to falling gas prices as well as reduced inflationary pressures from agricultural products and other global supply bottlenecks.

"These forces are expected to pass through to lower food and goods price inflation in the months ahead," the Bank of Canada said.

Higher interest rates will continue to elevate shelter prices, specifically mortgage costs, the central bank noted. Mortgage interest costs are expected to add 0.6 per cent to domestic inflation over the course of 2023 and 2024.

The Bank of Canada broke down several components of how it calculates inflation expectations and sees "other factors" -- defined as those which are forces that are underestimated or previously unobserved, such as the pass-through of commodity price moves -- as contributing significantly to inflation over the next year. Those "other factors" are expected to not contribute to the Bank of Canada's inflation outlook in 2024.

The Bank of Canada also revised its projections of economic growth next year by nearly a full percentage point and almost a half percentage point in 2024. While the Bank of Canada has not forecast a recession occurring in Canada next year, it does expect the Canadian gross domestic product to fall to 0.9 per cent next year from 3.3 per cent in 2022. Previously, the central bank expected Canada's economy to grow by 1.8 per cent in 2023, down from 3.5 per cent this year. Economic growth is expected to pick up to two per cent in 2024.

The Bank of Canada attributed the decline in domestic economic growth to the impact that supply chain disruptions have had on labour productivity, tighter financial conditions and fewer exports amid weak foreign demand.