Canada inflation unchanged in Sept, well under target

* Overall inflation 1.1 pct annually, 0.2 pct monthly

* Core 1.3 pct annually, 0.2 pct monthly

* Inflation has been under BoC target since April 2012

* Forecast had been for 1.0 pct overall, 1.4 pct core

By Randall Palmer and Leah Schnurr

OTTAWA/TORONTO, Oct 18 (Reuters) - Canada's annual inflation rate held steady last month, while underlying price pressures were also unchanged, suggesting the Bank of Canada has plenty of room to maintain its low interest rate policy.

Annual inflation was 1.1 percent in September, the same as the month before, Statistics Canada said on Friday, slightly higher than economists' expectations for 1.0 percent.

The rise in prices was driven by higher shelter costs, as well as increases in the prices of food and transportation. Core inflation, which strips out volatile items and is closely watched by the Bank of Canada, also held steady at 1.3 percent, just below the market forecast of 1.4 percent.

Both figures were well below the Bank of Canada's target rate of 2.0 percent, reinforcing the view that there is no pressure for the central bank to increase rates when it announces its monetary policy decision next week.

Economists noted the figures were getting close to the lower end of the Bank of Canada's inflation range, which sits at 1 percent.

"There's clearly no inflation pressure in Canada, period," said Carl Weinberg, chief economist at High Frequency Economics in Valhalla, New York.

"We're just scraping along the bottom of the target range and that's a lucky break for the Bank because it doesn't have to do anything."

On a monthly basis, overall and core consumer prices were 0.2 percent higher in September than in August.

The report was broadly in line with expectations, with price gains looking benign, said Mazen Issa, macro strategist at TD Securities. The Canadian dollar saw little immediate reaction to the data.

The Bank of Canada has kept its benchmark interest rate steady at 1 percent since September 2010 and economists do not expect that stance to change any time soon.

The last time inflation hit the central bank's precise target of 2 percent was April, 2012, and the last time core inflation hit that rate was June, 2012.

The costs of shelter rose 1.4 percent on a year-over-year basis, compared to a 1.1 percent gain in August, as consumers paid more for natural gas and rent, Statistics Canada said.

But homeowners saw their expenses continue to decline with mortgage interest costs falling 3 percent over the year, adding on to August's drop of 3.6 percent.

Food prices rose 1.2 percent, driven by more expensive fresh vegetables, meat and fruit.

Costs for health and personal care items declined 0.1 percent, though that was smaller than the 1.4 percent drop in August.