• Consumer price surprised on the upside in May, rising to 2.4% year-on-year (from 2.0% in April). Month-on-month, seasonally adjusted prices were up 0.3%, the same gain as in April. Gains were broad-based with all sub-categories rising on the month.
  • For once energy was not central to the story. Energy prices were down 0.1% from a year-ago, and excluding energy inflation was up an even stronger 2.7%.
  • Food, on the other hand, was a key part of the story. Food price inflation accelerated to 3.5% in May (from 2.9% in April), led by meat and fresh vegetables.
  • Transportation was another big source of price growth in May, up 3.1% (year-on-year) from 2.5% in April, with prices for passenger vehicles leading the way, up 4.2% (y/y).
  • Two of three core inflation measures moved higher in the month. CPI-median moved to 2.1% (from 1.9%) and CPI-trim rose to 2.3% (from 2.0%) – its highest level in over a decade. The CPI-common measure was unchanged at 1.8%. On average, the three core measures are at 2.1% (up from 1.9% in April).

Key Implications

  • Inflation is back in Canada, at least for now. While some of the factors pushing up price growth are likely to prove fleeting, we can’t discount the relatively broad-based nature of price growth in May.
  • The acceleration in the core readings support the notion that the Bank of Canada is likely to remain on the sidelines even as the U.S. Federal Reserve takes a more dovish stance. It has been some time since inflation surprised to the upside south of the border.
  • The Canadian economy continues to recover from its soft patch at the start of this year, with increasing signs of improving domestic demand, that should push growth above its potential rate over the remainder of this year. For more on our outlook, please see our recently published Quarterly Economic Forecast.


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