Canada’s headline inflation fee held at 1.7% in Might, matching April’s tempo, as shelter prices eased. Core inflation measures ticked down however proceed to stay elevated.
The pause in annual inflation got here from a mixture of rising and falling prices. Journey tour costs dipped barely (-0.2%), and hire will increase additionally slowed, rising 4.5% year-over-year in comparison with 5.2% in April. On the flip aspect, car costs climbed 4.9%, pushed partially by rising prices for sure electrical fashions.
The Financial institution of Canada’s most popular core inflation measures—CPI-trim and CPI-median—each edged down to three.0% in Might. CPI-median was additionally revised down to three.1% for April.
Whereas Might’s inflation knowledge provided some reassurance, core readings stay nicely above the Financial institution of Canada’s 2% goal, which continues to be a priority for policymakers.
“After final month’s disagreeable inflation shock, Might’s knowledge got here in largely as anticipated,” stated TD’s Andrew Hencic. “High line inflation continues to be restrained because the influence of the tip to the patron carbon tax offset modifications in vitality costs.”
Gasoline costs continued to fall because of the finish of the patron carbon value (-15.5%), StatCan famous.
BMO’s Douglas Porter described Might’s figures as “broadly related” to April’s, calling it “a deceptively calm headline with core hovering too far above the two% goal for consolation.”
He additionally identified that inflation is changing into extra widespread, with 47% of the core basket now operating above 3%, up from 42% in April.
Scotiabank’s Derek Holt additionally flagged core inflation as a key concern. “Canada has been in a chronic state of excessive core inflation readings relationship again over the previous 12 months with no indicators that the BoC has contained inflationary pressures to this point, not to mention addressed ahead trying dangers,” he wrote in a analysis notice.
Fee reduce much less possible as commerce uncertainty lingers
Whereas Might’s inflation knowledge met expectations, the trail to fee cuts stays unsure for the BoC.
With core inflation nonetheless hovering nicely above the Fed’s goal, Porter sees the central financial institution needing to see “way more enchancment earlier than it’s satisfied that underlying inflation is heading again to 2%.”
With one other CPI report, together with jobs and GDP knowledge due earlier than the July assembly, there’s nonetheless an opportunity the Financial institution may get the affirmation it wants.
However commerce negotiations could weigh much more closely on July’s fee choice. Holt identified {that a} potential Canada–U.S. settlement on commerce and safety is approaching its 30-day deadline subsequent month.
Hencic agrees that commerce negotiations will play a key function within the Financial institution’s subsequent transfer, however provides that broader financial softness may nonetheless open the door to additional cuts this 12 months, although he doesn’t specify when.
“As has been the case this 12 months, the outlook is closely depending on how commerce negotiations evolve, however we consider that the tender financial backdrop ought to give the BoC house to ship two extra cuts this 12 months,” he famous.
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Final modified: June 25, 2025
