Canada's annual inflation rate rose to 2.9 per cent in May, driven by services prices

Canada's annual inflation rate rose to 2.9 per cent in May, largely driven by higher prices for services, Statistics Canada reported Tuesday.

The result was up from an annual inflation rate of 2.7 per cent in April. 

Statistics Canada said the overall increase for May came as prices for services rose 4.6 per cent from a year ago, up from a 4.2 per cent increase in April. Prices for goods grew at the same rate as April at one per cent.

The inflation report follows a decision by the Bank of Canada, which targets an annual inflation rate of two per cent, to cut its benchmark interest rate by a quarter of a percentage point earlier this month to 4.75 per cent.

The inflation reading, along with the upcoming June inflation data, are expected to play a key role in the central bank's next rate decision, set for July 24.

TD Bank senior economist James Orlando said one bad inflation report doesn't make a trend and inflation remained below three per cent, but it did speak to the unevenness of the path back to two per cent. 

"For this reason, we think the BoC will likely pause at its July meeting, before cutting rates again in September," Orlando wrote in report.

Mortgage interest costs were up 23.3 per cent compared with a year ago, while rent prices were up 8.9 per cent.

Prices in May for travel tours rose 6.9 per cent compared with a year ago while air transportation prices increased 4.5 per cent.

Gasoline prices were up 5.6 per cent compared with a year ago. 

Grocery prices rose 1.5 per cent year-over-year in May, a tick higher compared with April, when they rose 1.4 per cent. It's the first acceleration in grocery prices since June last year, however Statistics Canada said consumers are paying 22.5 per cent more for groceries compared with May 2020.

This report by The Canadian Press was first published June 25, 2024.