* Inflation rate 0.9 pct in Nov, below Bank of Canada target
* Core inflation slips on month for 1.1 pct annual rate
* Bank of Canada seen staying vigilant on low inflation
* Retail sales unexpectedly slip 0.1 pct in October
By Louise Egan
OTTAWA, Dec 20 (Reuters) - Canada's annual inflation rate crept up to 0.9 percent in November from 0.7 percent in October but it remained below the central bank's target range, ensuring that chronically weak inflation will stay on policymakers' radar as a top concern.
The Canadian dollar weakened to a 3-1/2-year low against the U.S. dollar after the Statistics Canada inflation report, which confirmed analysts' expectations that steep discounting by retailers around "Black Friday" would prevent inflation from gaining much momentum in the near term.
A separate report from Statscan on retail sales in October showed unexpected weakness in the sector as purchases of cars declined.
The consumer price index was flat month on month, with the annual CPI rate pushed higher mainly by shelter and food costs, while prices fell for health and personal care as well as for clothing and footwear.
But the annual core CPI, closely watched by the Bank of Canada because it excludes volatile items such as gasoline and food, slipped 0.1 percentage point in the month for an annual rate of 1.1 percent.
Both the total and core inflation rates were slightly below market expectations of 1.0 percent and 1.2 percent, respectively.
"From a policy perspective, (it) helps fuel the growing narrative that the Bank of Canada is becoming increasingly more dovish," said Mazen Issa, a strategist at TD Securities.
"Certainly the risk that the bank adopts an explicit easing bias in January continues to grow and this report lends further credence to that view," he said.
Bank of Canada Governor Stephen Poloz told Reuters this week the bank's stance on monetary policy is neutral, but he acknowledged it is "having trouble explaining" why inflation is so weak, as well as being puzzled by poor exports and business investment in the context of an improving U.S. economy.
The bank first explicitly stated an increased concern about low inflation in its Oct. 23 interest rate decision, when it shifted into a neutral after 18 months of leaning towards rate hikes.
This month, it warned that heightened competition in the retail sector appeared more persistent than anticipated.
More retailers in Canada, including Target Corp and Wal-Mart Stores Inc, have been running Black Friday sales in November even though Canadians celebrate Thanksgiving in October, as they try to keep customers from crossing the border for better deals.
In the United States, this shopping season is expected to be the most competitive since the financial crisis of 2008, with retailers discounting heavily to woo cautious shoppers.
Inflation has been below the Bank of Canada's 2 percent target for 19 months. For seven of the past 13 months it has been below the 1 to 3 percent range the bank tolerates.
The latest figures suggest inflation will be below the Bank of Canada's latest estimate of 1.3 percent average CPI in the fourth quarter. The bank will update its forecasts on Jan. 22.
"I do think the real story here is on core inflation, the fact that we're now just about scraping the very low end of the comfort zone for the Bank of Canada, and I do think it's largely due to the heavy duty discounting we're seeing among a number of retailers," said Doug Porter, chief economist at BMO Capital Markets.
"So it's a fairly big miss by the bank on core inflation."
The Canadian dollar weakened after the report to C$1.0700 to the greenback, or 93.46 U.S. cents, from Thursday's close of C$1.0666, or 93.76 U.S. cents.
Retail sales unexpectedly fell by 0.1 percent in October from September as a downturn at car dealerships offset upbeat supermarket sales. Market analysts had forecast a 0.2 percent increase in monthly sales.
The weak reading followed three straight months of gains as four of the 11 retail subsectors declined.
However, in volume terms, retail sales grew 0.2 percent in October.
The data, combined with strong readings in manufacturing and wholesale trade in October, suggest the economy will grow at a healthy clip in the fourth quarter, although below the 2.7 percent annualized growth seen in the third.
Overall sales at motor vehicle and parts dealers fell 1.9 percent. New car sales slid 1.6 percent after a 4.6 percent surge in the previous month. Gasoline station sales fell 1.6 percent.
On the other hand, food and beverage stores registered a 1.7 percent jump in sales.
Total sales excluding the auto sector grew 0.4 percent.