Key Takeaways

• Inflation surges: Canada’s annual CPI accelerated to 3.2% in May — a 29-month high — well above the 3.0% forecast and April’s 2.8%.
• Monthly CPI jumps: The monthly rate rose 1.0% — the highest monthly increase in 15 months — exceeding the 0.8% expected.
• Gasoline the culprit: Pump prices surged 33.2% year-on-year in May — exceeding levels seen after Russia’s invasion of Ukraine four years ago.
• Transportation costs spike: The sector — accounting for 18.5% of the CPI basket — posted a 9% annual increase driven by fuel costs.
• Excluding gasoline: Core CPI still rose to 2.2% from 2.0% in April, led by food, recreation, and alcoholic beverages.
• Food costs rise: Food prices climbed 3.8% year-on-year from 3.5% in April; fresh fruits jumped 5.3% and vegetables surged 9%.
• Shelter softens the blow: At nearly 30% of the CPI basket, shelter costs rose just 1.7% — helped by a 0.2% decline in mortgage costs.
• Core inflation steady: CPI-median held at 2.1%; CPI-trim remained at 2.0% — suggesting limited broad-based pass-through.
• Bank of Canada unlikely to shift: The central bank said earlier this month it sees limited evidence of energy prices fueling broad-based inflation.
• Iran peace deal offers June relief: With oil prices already reversing sharply after last week’s U.S.-Iran MOU signing, analysts expect the headline figure to ease in June.

Canada’s annual inflation rate in May accelerated more than expected to 3.2% — a 29-month high — data showed on Monday, as the impact of higher crude oil prices due to the Iran conflict continued to filter through gasoline costs.

Analysts polled by Reuters had estimated the annual inflation rate to touch 3.0% in May, up from 2.8% in April.

The prices, however, are already showing a major reversal in June after an interim peace deal was signed between the United States and Iran last week — which analysts have said could help ease the headline number next month.

Gasoline Prices at Post-Ukraine Invasion Highs

Statistics Canada said excluding the impact of gasoline prices, the consumer price index still posted a higher increase of 2.2% in May from 2.0% in April, led by elevated costs of food, recreation, and alcoholic beverages.

The monthly inflation rate rose to 1.0% in May — the highest monthly rise in 15 months — exceeding expectations of a 0.8% increase.

Gasoline prices in May rose 33.2% on a year-over-year basis. Canadians in May paid more for gasoline than at the previous peak four years ago when Russia invaded Ukraine, StatsCan said.

This led to an increase in transportation costs — which account for almost 18.5% of the CPI basket — posting a 9% annual increase last month.

Limited Broad-Based Pass-Through

The inflation number is not likely to alter the Bank of Canada’s assessment of underlying inflation, as it said earlier this month that it was seeing limited evidence that higher energy prices were fueling broad-based price gains.

Food costs — contributing around 17% of the CPI basket — rose 3.8% in May from 3.5% in April, driven by an increase in fresh fruits and vegetables, which rose 5.3% and 9% respectively.

The impact of higher transportation and food prices was largely offset by shelter costs — the biggest contributor to the CPI basket at close to 30%. Shelter costs rose 1.7% in May following a 1.8% increase in April, helped in particular by a 0.2% reduction in mortgage costs.

The closely tracked measures of core inflation stayed unchanged in May. CPI-median — the centermost component of the basket — held at 2.1%, while CPI-trim, which excludes the most extreme price changes, remained at 2.0%.