Canada’s annual inflation rate rose to 3.2% in May, driven by increasing gas prices and a surge in the cost of fresh produce, as reported by Statistics Canada. The spike in gas prices, influenced by an oil shortage linked to the conflict in Iran, played a significant role in pushing inflation higher for another consecutive month. Gasoline prices saw a notable increase of 33.2% year-over-year in May, up from 28.6% in April, contributing to the highest inflation level since late 2023.
Despite the escalation in prices, BMO’s chief economist, Doug Porter, mentioned a recent decline in pump prices, which is expected to lower the headline inflation rate in the upcoming report. Excluding the impact of gas prices, the consumer price index still exhibited a rise of 2.2% in May, compared to two percent in April, primarily influenced by elevated costs in food, recreation, and alcoholic beverages.
The cost of fresh fruit climbed by 5.3% year-over-year, while fresh vegetable prices surged by nine percent in May. Tomatoes experienced a substantial spike of 45.2%, attributed to adverse weather conditions and reduced crop planting in Mexico due to U.S. tariffs, highlighting the ongoing impact of trade uncertainty on the economy, according to Pedro Antunes, chief economist at Signal49 Research.
Vegetable prices soared by 5.5% month-over-month, the highest increase for May since 2008, driven by reduced supply and increased fuel expenses. This surge in fresh produce costs led to a 4.3% yearly inflation rate for groceries in May.
Additionally, prices for computer equipment, software, and supplies rose by 3.9% in May, with the surge attributed to increased costs of random access memory (RAM) and solid-state drives (SSDs) essential for computers. Statistics Canada pointed out a supply shortage for key computer components due to rising demand from artificial intelligence data centers.
Shelter costs experienced a slower growth rate of 1.7% year-over-year in May, balancing out the increases in other sectors, while prices for passenger vehicles, tools, and household equipment also saw moderate growth. Analysts had predicted a three percent annual inflation rate for May, slightly up from 2.8% in April.
RBC economist Abbey Xu highlighted that core inflation rates, excluding volatile items, hovered around two percent, aligning with the Bank of Canada’s target. Despite rapid increases in food and energy prices, Xu observed subdued price growth in other categories, indicating that the rise in gas prices has not extensively impacted the cost of other goods.
Nevertheless, BMO’s Porter emphasized the sting of the overall high inflation rate. He underscored concerns about persistent food inflation, describing the current inflation rate exceeding three percent as a mild disappointment, emphasizing the undesirable nature of such a spike, even if it is temporary.
