Gas prices push inflation higher
Canada’s annual inflation rate rose to 3.2% in May, according to Statistics Canada, as higher gasoline prices continued to put pressure on household costs. The increase brought inflation to its highest level since late 2023.
Gasoline remained the main factor behind the rise. Prices at the pump were up 33.2% year over year in May, accelerating from a 28.6% annual increase in April. Statistics Canada linked the increase to an oil shortage caused by the war in Iran.
Economists expect some relief ahead
BMO chief economist Doug Porter noted that gasoline prices have eased in recent weeks. He said that decline should help pull the headline inflation rate lower in the next inflation report.
Even without gasoline, inflation still moved higher. Excluding gas prices, the consumer price index rose 2.2% in May, compared with 2% in April. The increase was led by higher prices for food, recreation, and alcoholic beverages.
Fresh produce adds pressure at grocery stores
Food prices remained a key concern for consumers. Fresh fruit prices rose 5.3% compared with the same month a year earlier, while fresh vegetable prices climbed 9% in May.
Tomatoes saw one of the sharpest increases, jumping 45.2%. Statistics Canada said the surge was tied to poor weather and reduced planting in Mexico, partly linked to U.S. tariffs. Pedro Antunes, chief economist at Signal49 Research, said the figures show that trade uncertainty continues to affect the economy.
Vegetable prices post sharp monthly gain
Fresh vegetable prices rose 5.5% from April to May, the largest May increase since 2008, according to Statistics Canada. The agency pointed to lower supply and higher fuel costs as key reasons behind the monthly rise.
The higher cost of fresh produce pushed overall grocery inflation to 4.3% year over year in May.
AI demand affects computer-related prices
Prices for computer equipment, software, and supplies increased 3.9% in May. Statistics Canada said higher costs for random access memory, known as RAM, and solid state drives, known as SSDs, contributed to the rise.
The agency said demand from artificial intelligence data centres has created a supply squeeze for important computer components.
Shelter costs help limit broader inflation
Shelter costs rose at a slower annual pace of 1.7% in May, helping offset increases in other categories. Price growth also cooled for passenger vehicles, tools, and other household equipment.
Analysts surveyed by Reuters had expected annual inflation to reach 3% in May, up from 2.8% in April. The actual reading came in above that forecast.
Core inflation remains near target
Abbey Xu, an economist with RBC, said core inflation measures that exclude more volatile items were close to 2%, which is the Bank of Canada’s inflation target.
Xu noted that while food and energy prices have risen quickly, price growth in other areas remains relatively contained. That suggests higher gasoline costs are not spreading strongly into the prices of other goods.
Food inflation remains a concern
Porter said the May report was still disappointing because the headline inflation rate moved above 3%, even if the increase may prove temporary.
“The persistence of food inflation is a significant thorn, and we have to rate this one as a mild disappointment overall — it’s never good news to see the overall inflation rate track above three per cent, even if it is for one month only,” Porter wrote in a note to investors.
