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Economic News

Canada: May Inflation Reaccelerates in an Upset Worthy of a Stanley Cup Final

June 25, 2024
Randall Bartlett
Senior Director of Canadian Economics


  • Headline CPI rose 2.9% y/y in May, well above the expectations of economists (2.6%). Prices rose 0.6% m/m, but only 0.3% after adjusting for seasonal effects. Table 1 summarizes the key data points. 


Bucking the trend of the last few months, the CPI inflation print came in well above the expectations of economists in May. A reacceleration in services inflation explains most of the headline move. Prices of travel tours, air transportation and groceries picked up on both a month-over-month and year-over-year basis. Meanwhile, the cost of cellular services fell again in May over the same month last year, but by much less than in April given the second consecutive month-over-month advance.

In better news, growth in shelter prices (6.4% y/y) was unchanged in May despite continuing to be the primary contributor to overall CPI inflation (graph 1). This was the result of lower owned accommodation inflation (6.2%) offsetting another month of accelerating rented accommodation costs (8.6%). Excluding shelter, inflation accelerated to 1.5% from 1.2% in April, although it’s been below the central bank’s 2% target for most of the past eight months. Lower gasoline prices in the month were also a positive for cash-strapped Canadian households. 

Turning to underlying inflation, the Bank of Canada’s preferred measures of core CPI year-over-year price growth—median and trimmed mean—accelerated in May but managed to stay under 3% y/y for the second consecutive month. On a 3-month annualized basis, these measures topped 2% for the first time since February, averaging about 2.5% (graph 2). Looking to the more universally referenced total CPI inflation excluding food and energy, inflation on a 3-month annualized basis rose one full percentage point to 3.2% in May—the first time this indicator has had a 3-handle since late 2023. Finally, the Bank’s former preferred measure of core inflation—CPIX (CPI excluding the 8 most volatile components & indirect taxes)—advanced 1.3 percentage points when calculated the same way, topping 2% for the first time since the end of last year. 

Despite the unexpected uptick in total inflation in May, it has remained within the Bank of Canada’s 1% to 3% target range for five consecutive months—the first time that’s happened since the disinflationary days early in the COVID-19 pandemic. At 2.8% y/y, headline inflation in April and May averaged below the Bank’s forecast of 2.9% for Q2 in the April 2024 Monetary Policy Report. Most measures of underlying inflation remain below 3% as well and have been for a few months. At the same time, real GDP growth is tracking roughly in line with the Bank’s most recent forecast to start 2024 (see our latest Economic and Financial Outlook External link. for more information). And on a per capita basis, economic activity looks even worse. Taken together, we continue to expect a rate cut at the Bank of Canada’s upcoming July interest rate announcement. That said, the May price data puts more weight on the upcoming employment and inflation releases. 

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.