Gasoline Spike Pushes Canada Inflation to Highest Since 2023

A driver refuels at a gas station in Vancouver. Photo by Isabella Falsetti /Bloomberg

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(Bloomberg) — Spiking gasoline prices pushed Canadian inflation to the highest in over two years, while the breadth of price pressures narrowed and core measures were little changed.

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The yearly change in the consumer price index hit 3.2% in May, Statistics Canada reported Monday, the highest level since December 2023. Economists surveyed by Bloomberg expected it to rise at a 3% pace last month, up from 2.8% in April. On a monthly basis, inflation rose 1.0%, also above expectations.

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Still, core measures — which strip out the more volatile changes in price — show underlying price pressures remain subdued as the country’s weakened economy adjusts to slowing population growth and export damage caused by US trade policy.

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Excluding food and energy, inflation accelerated to 1.6%. Stripping out gasoline, the consumer price index rose by 2.2%. The average of the Bank of Canada’s preferred measures of trim and median inflation was unchanged at 2.1%, though the gauges also accelerated sharply to 2.3% on a three-month moving annualized basis.

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The loonie initially strengthened after the report before reversing those gains to trade at C$1.4176 per US dollar as of 9:35 a.m. in Ottawa. The two-year government bond yield was up about two basis points to 2.794%. Traders in overnight swaps continue to price in nearly one rate hike by December.

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The conflict in the Middle East continued last month to push up gasoline prices, which rose by 33% from a year ago, the agency said. Prices for air transportation also spiked in May, up 7.4% after a 1.7% decline in April.

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With tensions between the US and Iran now easing, the price of oil has started to fall, with Canadian gas prices returning to the lowest since mid-March. That should also put downward pressure on fuel prices in coming months. Earlier this month, Governor Tiff Macklem said he expected headline inflation to hold near 3% before “easing gradually” to the bank’s 2% target.

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“With oil and gasoline prices now well off their earlier highs, today’s figure should mark the peak,” Andrew Grantham, senior economist at Canadian Imperial Bank of Commerce, said in a report to investors. 

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“The low starting point for core measures of inflation on a year-over-year basis should enable the Bank of Canada to look through any near-term acceleration and we continue to see interest rates on hold throughout the remainder of 2026.”

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At the same time, the data show acute price pressures are more limited, with 35% of goods and services in the consumer basket rising at or above a 3% yearly pace in May. That’s down from 45% in December and suggests the breadth of inflationary pressures is narrowing, a key signal for policymakers at the central bank, who have raised concerns about higher energy prices spreading through the economy.