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Economic News

Canada: Gasoline Prices Sparked Higher Headline Inflation in May

June 22, 2026
LJ Valencia
Economist

Highlights

  • Headline CPI rose 3.2% y/y in May, above the April pace (2.8%) and the consensus expectation of economists (3.0%). Prices were up 1.0% month over month and rose 0.5% m/m after adjusting for seasonal effects. Table 1 summarizes the key data points.

Comments

As expected, headline CPI inflation continued to be fuelled by rising higher energy prices in May, up 22.2% y/y led by accelerating gasoline prices (33.2%) (graph 1). The Iran conflict External link. was the clear catalyst for increasing energy prices. Still, the year-over-year advance in gasoline prices was well below the all-time high reached in June 2022 (54.7%), when the Russian invasion of Ukraine triggered supply uncertainty.

The impact of higher energy prices appeared to spill over into services (2.0% y/y) (graph 2). Air transportation prices rose 7.4%, reflecting growing airline operating costs, particularly for jet fuel. However, price pressures were not limited to energy. Some goods-related categories continuing to see notable gains, including fresh fruit (5.3%). Durable goods advanced 1.9%, partly reflecting higher prices for computer equipment, software and supplies (3.9%) due to strong demand tied to AI data centre investment. In contrast, shelter prices continued to cool (1.7%), with homeowners’ replacement costs declining for the 13th consecutive month (-2.5%). Mortgage interest costs fell further (-0.2%), marking the 33rd straight month of year-over-year price deceleration. At 3.5%, rent inflation also posted its slowest advance since January 2022.

So far, higher energy prices do not appear to be feeding meaningfully into underlying inflation (graph 3). The average of the Bank of Canada’s (BoC) preferred measures of core inflation—CPI median and trimmed mean—rose at the same year-over-year pace as the previous month (2.1% y/y). Total CPI inflation excluding food and energy edged up slightly to 1.6%, while total CPI inflation excluding the eight most volatile components moved at tick higher to 2.2%. Meanwhile, the seasonally adjusted 3-month moving average of these latter two core price measures accelerated from 0.8% in April to 1.1% in May. Additionally, when this same calculation is applied to the average of the Bank’s preferred measures, it increased from 1.8% in March to 2.3% last month—still within the Bank of Canada’s operating range.

Implications

Despite today’s headline inflation print, it is unlikely to influence a change in interest rate policy given limited movement in underlying inflation. Our latest outlook External link. expects inflation to peak in Q2 2026, followed by a gradual slowdown. Although further surprises cannot be ruled out, this points to the peak in price pressures potentially being behind us. That said, energy prices are likely to remain elevated for some time, supporting exports, investment and national income while putting downward pressure on consumption External link.. When combined with uncertainty around the Canada-United States-Mexico Agreement (CUSMA) review External link., these downside risks should be sufficient for the BoC to stay on hold for the rest of the year.

NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.