By Robb M. Stewart
OTTAWA--The hit Canadians took at the pumps last month pushed inflation to a 29-month high, though price pressures beyond gasoline remained largely contained.
The consumer-price index climbed 1% in May, pushing the annual rate to 3.2%, Statistics Canada said Monday. That is the highest level since December 2023, when inflation hit 3.4%.
A third straight month of rising gasoline prices as the conflict in the Middle East continued to restrict crude oil supplies meant Canadians were paying the most for gas since mid-2022, when Russia invaded Ukraine.
Inflation now sits just above the top end of the 1% to 3% window the Bank of Canada looks to maintain. Economists expect central bankers will be able to continue looking through the hot headline figure following the recent retreat in gas prices after the U.S. and Iran agreed on a deal to reopen the Strait of Hormuz and allow oil shipments to resume.
The consensus call among economists was for monthly inflation of 0.7% and an annual pace of 3% from April's 2.8%, in keeping with the Bank of Canada's most recent forecast for it to hover around 3% near term before easing gradually toward its 2% target. More important, analysts said, is the fact that the underlying measures of inflation remain close to the target and there remains limited evidence the spike in oil had spurred broader price pressures.
Stripping out gas, the consumer price index still rose at a slightly faster pace year-over-year of 2.2% in May against April's 2%. Traditional core inflation, which excludes volatile food and energy costs, also ticked up to 1.6% from a year earlier.
The underlying measures preferred by the Bank of Canada held steady, with trimmed mean and weighted median inflation again averaging 2.05%. That is tracking the 2.1% the central bank had projected for the second quarter.
The inflation report for June will be released shortly after the central bank's governing council next meets to decide on interest rates. Most economists continue to expect the bank will sit tight for a sixth time in a row.
"With the worst of the oil price surge now seemingly behind us and core price pressures narrow, the Bank will be quietly confident that sizeable second-round effects have been averted and rate hikes aren't necessary with the economy looking shaky," said Bradley Saunders, North America economist at research firm Capital Economics.
Canadians did pay more for food in May, something Statistics Canada in part attributed to the rise in energy costs. Prices for food bought from stores for a 16th consecutive month outpaced headline inflation, driven by higher prices for fresh fruit and vegetables in May. Fresh vegetables saw the largest month-over-month price increase since 2008 following a decline in April, which the data agency said was attributed to reduced supply and higher fuel costs. The same month, tomato prices rose sharply after a drop in Mexican supplies the agency said stemmed from poor weather and a cut in planted acreage following U.S. import tariffs.
Canadians also paid more for travel tours and air fares, both of which rebounded after falling in April. Airlines around the world have faced a jump in operating costs, including a spike in jet fuel.
On the other hand, prices for shelter continued to decelerate. Rent cooled modestly, rising 3.5% in May versus a year earlier, the softest increase since January 2022. And the homeowners' replacement cost index fell annually for a 13th month in a row, and other accommodation expenses like real estate sale commissions also declined.
Price growth for durable goods stabilized, holding at 1.9% last month. Prices for computer equipment were up, but price increases slowed for items including household equipment and passenger vehicles, and fell at a faster pace for household appliances.
Michael Davenport, senior Canada economist at Oxford Economics, said May is likely to mark the near-term peak for headline inflation, with the agreement to reopen the Strait of Hormuz reducing upside risks to inflation. "Markets continue to price in roughly one rate hike before year's end, but we think subdued core inflation and a weak economy will keep the BoC on hold for the rest of 2026," he said.
Write to Robb M. Stewart at robb.stewart@wsj.com
(END) Dow Jones Newswires
June 22, 2026 11:08 ET (15:08 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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