Canadian Inflation Accelerates
Canada's Inflation Hits 29-Month High at 3.2% in May, Bank of Canada Holds Rate
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Key Points
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Statistics Canada data showed shelter inflation rebounded in May, with shelter costs rising 1.7% after falling 1.8% in April; the report attributed the shift to components including a 2.5-point drop in the homeowners’ replacement index, a 2.1% decline in real-estate sale commissions, a slight 0.2% slip in mortgage interest costs, and rental costs up 3.5%.
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Beyond energy and groceries, some categories were also adding pressure: Canadians paid 3.9% more for computer equipment and software, with the report linking the increase to AI data-centre demand alongside reduced production capacity.
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On a monthly basis, CPI rose 1.0% in May (seasonally adjusted monthly gain 0.5%), and Statistics Canada said the increase was driven primarily by higher prices in recreation, education and reading, as well as transportation.
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Statistics Canada said May marked the most consumers have paid for gasoline since June 2022, underscoring how unusual the recent fuel-price surge is compared with the post-2022 period.
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Economists were leaning slightly lower than the eventual CPI print: TD Securities expected inflation to rise to 3% in May from 2.8% in April, but the actual rate came in hotter at 3.2%.
Canada's inflation rate jumped to 3.2% in May, the highest reading since April 2023, according to Statistics Canada. That beat the 3% forecast from most economists and accelerated sharply from 2.8% in April.
Gasoline prices led the charge, surging 33.2% year over year — the highest pump prices Canadians have faced since June 2022, Statistics Canada said. Grocery bills are also climbing fast, rising 4.3% and outpacing headline inflation for the 16th month in a row.
Strait of Hormuz Closure Sent Gas Prices Soaring
The main driver of May's inflation spike was fuel. Gasoline rose 33.2% compared to a year ago, according to Yahoo Finance. The surge traces back to the closure of the Strait of Hormuz — a narrow waterway that carries roughly 20% of the world's oil supply — following Middle East conflict earlier this year.
Peace talks have made some progress since mid-June, and crude prices have eased slightly. But retail pump prices have not fallen as fast — a pattern sometimes called 'rocket and feather' pricing. Air travel got more expensive too, with airfare up 7.4% year over year as higher jet fuel costs flowed through to ticket prices.
Grocery Bills Keep Climbing, Led by Vegetables and Tomatoes
Grocery inflation hit 4.3% in May. That marks 16 straight months where food prices have risen faster than the overall inflation rate, Statistics Canada reported. Fresh produce drove much of the pain. Vegetables and tomatoes were especially hard hit.
The cause is a mix of poor weather and shrinking farmland in Mexico. U.S. tariffs on Mexican produce cut into the acreage farmers were willing to plant. Since Canada shares North American supply chains with the U.S., Canadian grocery stores felt the squeeze. Low-income households are hit hardest because food is not optional spending.
Shelter Rebounds and AI Demand Pushes Tech Prices Higher
Shelter costs bounced back in May, rising 1.7% after a 1.8% drop in April, Statistics Canada said. Rent climbed 3.5% year over year. Mortgage interest costs slipped 0.2%, and real-estate commissions fell 2.1%. But those savings were not enough to offset higher rents for most Canadians.
Computer equipment and software rose 3.9%, a category that rarely moves this much. Yahoo Finance linked the increase to surging demand for AI data centers, which has pulled manufacturing capacity away from everyday consumer electronics. It is a new inflation pressure that economists had not expected to see in the CPI basket.
Bank of Canada Rate Cut Odds Fall After Hotter-Than-Expected Print
Economists at TD Securities had forecast a 3% print for May. The actual 3.2% figure came in hotter, Yahoo Finance reported. James Orlando, a senior economist at TD Securities, said the result was "a wake-up call," noting that pressure is spreading beyond energy into shelter and technology.
The Bank of Canada now faces a tough call at its next rate decision in July. Before the report, markets priced in a 65% chance of a rate cut. That has dropped to about 25%, as the BoC — Canada's central bank — cannot afford to look soft on inflation above 3%. One silver lining: core measures like the trimmed mean and weighted median held steady at roughly 2.05%, suggesting the spike may still be mostly supply-driven rather than a sign of runaway demand, according to CKNW News Today.
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