Canada saw a rise in its annual inflation rate to 3.2% in May, as reported by Statistics Canada. The increase in gas prices and the surge in costs of fresh fruits and vegetables were the main contributors. The high gas prices, impacted by an oil shortage due to the conflict in Iran, were the driving factor behind the continuous uptick, with gasoline prices climbing 33.2% year-over-year in May.
The escalating prices pushed the annual inflation rate to its peak since late 2023. However, BMO’s chief economist, Doug Porter, mentioned that pump prices have started to ease in recent weeks, which is expected to lower the headline inflation figure in the upcoming report.
Excluding the influence of gasoline prices, the consumer price index still showed a higher increase of 2.2% in May, led by elevated costs in food, recreation, and alcoholic beverages. The price of fresh fruit rose by 5.3%, while fresh vegetables saw a nine percent increase in May. Specifically, tomato prices surged by 45.2%, attributed to adverse weather conditions and reduced planting in Mexico due to U.S. tariffs, indicating ongoing trade uncertainties affecting the economy.
The monthly increase in vegetable prices by 5.5% marked the largest rise for May since 2008, as a result of reduced supply and increased fuel costs. This surge in fresh produce costs led to an overall inflation rate of 4.3% for groceries in May.
Furthermore, prices for computer equipment, software, and supplies increased by 3.9% in May, driven by the rising costs of key components like RAM and SSDs required for computers. The demand from artificial intelligence data centers has caused a supply shortage for these computer inputs.
Shelter costs saw a slower growth rate of 1.7% year-over-year in May, balancing out increases in other sectors. On the other hand, prices for passenger vehicles, tools, and household equipment showed slower growth rates. Analysts had projected the annual inflation rate to reach three percent in May, up from 2.8% in April.
Despite the rapid rise in food and energy prices, core inflation measures excluding volatile items hovered around two percent, in line with the Bank of Canada’s target. While food and energy costs surged, the price growth in other categories remained subdued, indicating that the impact of gas prices on overall goods costs was limited.
Although core inflation remained stable, the overall high inflation rate was concerning. BMO’s Porter expressed his unease, stating that persistent food inflation was a significant issue. He emphasized the disappointment in the inflation rate exceeding three percent, even if it was for a single month.
