Tough talk from Canada's largest grocer on Tuesday has fuelled speculation that food sellers are bearing down for an old-fashioned price war this holiday season.

On Wednesday, Statistics Canada revealed that Canada's annual inflation rate hit 0.1 per cent in October. But within the modest overall uptick, food prices were up 2.3 per cent in the previous 12 months.

Competitive pressures could keep prices at grocery stores lower this holiday season, experts say. (Matt Rourke/Associated Press)

"Food prices are still quite elevated as compared to where they were last year, but we're hearing now that there may be a bit of a price war as we head into the holiday season," said Patricia Croft, chief economist at Phillips, Hager and North.

Executives at Loblaw Companies Ltd. confirmed on Tuesday that the supermarket giant is cutting prices to stay competitive during the key holiday season.

"We expect that sales and margins will be challenged due to decreasing inflation and competitive intensity," executive chairman Galen Weston said in releasing the company's latest quarterly earnings results.

Three-month stock chart for Metro Inc. on the TSX.

Despite the 2.3 per cent annual gain in overall food prices, actual prices at Loblaw checkouts were "below food price inflation as measured by the consumer price index and significantly lower than the second quarter of 2009," the company revealed.

Last month, Loblaw announced plans to slash the basic price on more than 2,000 items, including national brand names and the company's in-house line of President's Choice products.

"We take pricing extremely seriously," Loblaw COO Dalton Philips said at the time.

Competition is definitely heating up, experts say, but Metro Inc. played down the prospect of an all-out price war when it revealed its own earnings on Wednesday.

"We don't see an ugly, war-type environment," chief executive officer Eric La Fleche said during a conference call.

CFO Richard Dufresne told the The Lang & O'Leary Exchange on the CBC News Network on Wednesday that this time of year, around the holidays, is always highly competitive, "but we're not talking price war nor irrationality at all."

Three-month stock chart for Loblaw on the TSX.

Profits and revenue were up at Metro, to $84.4 million and $2.53 billion, respectively. At Loblaw, profit was higher, to $189 million, even as revenue shrank somewhat, from $9.49 billion to $9.47 billion.

With 160 stores in Ontario, Metro is the largest by store count in the province, while Loblaw dominates the market nationally.

"We are very pleased with our fourth quarter … which we achieved by maintaining our competitive pricing position," Metro's La Fleche told analysts.

Still, the price-conscious lower end of the market was a standout within Metro's results. Tough economic conditions continued to drive consumers to Metro's discount banners Food Basics and Super C, the company said.

In another reflection of the low-price mentality, Metro said it saw significant growth in sales of its private label brands, which now include 3,400 products.

With files from The Canadian Press