Canada’s inflation rate rises to 3.2% in May, highest in more than two years

Canada’s annual inflation rate in May accelerated more than expected to 3.2 per cent, 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 per cent in May, up from 2.8 per cent 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 in June.

Statistics Canada said excluding the impact of gasoline prices, the consumer price index still posted a higher increase of 2.2 per cent in May from 2 per cent in April led by elevated cost of food, recreation and alcoholic beverages.

The monthly inflation rate rose to 1 per cent in May, exceeding expectations of 0.8-per-cent rise. This is the highest monthly rise in 15 months.

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Gasoline prices in May rose by 33.2 per cent on a year-over-year basis. Consumers in May shelled out more for gasoline than from its previous peak four years ago when Russia invaded Ukraine, Statscan said.

This led to an increase in the cost of transportation, which accounts for almost 18.5 per cent of the CPI basket, posting a 9-per-cent annual increase last month.

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

Cost of food, which also contributes around 17 per cent of the CPI basket, rose 3.8 per cent in May from 3.5 per cent in April, Statscan said, adding that this was fuelled by an increase in prices of fresh fruits and vegetables which rose by 5.3 per cent and 9 per cent respectively in May.

The impact of higher transportation and food prices were largely offset by shelter costs, the biggest contributor to the CPI basket at close to 30 per cent. Shelter costs rose by 1.7 per cent in May following a 1.8-per-cent increase in April, data showed, especially led by a reduction in mortgage costs which shrunk by 0.2 per cent last month.

The closely tracked measure of core inflation stayed unchanged in May.

CPI-median, the centremost component of the CPI basket, was at 2.1 per cent, while CPI-trim, which excludes the most extreme price changes, was at 2 per cent.