Canadian consumer prices rose 1.7% year-over-year in May, matching April’s reading, while core inflation measures remained stubbornly above the Bank of Canada’s 2% target, likely reducing chances of a July rate cut.
On a monthly basis, headline CPI is up 0.6% versus the 0.5% consensus for the month while core CPI accelerated from 0.5% to 0.6% month-on-month. Data revealed that underlying price pressures persisted with some signs that tariffs-related gains on certain goods may be easing while other sectors showed unexpected firmness.
Key Takeaways
- Headline inflation steady: CPI held at 1.7% year-over-year, matching April and remaining below the BoC’s 1-3% target band
- Core measures elevated: CPI-trim and CPI-median both declined marginally to 3.0% from April levels, but remain well above the 2% target
- Shelter costs cooling: Rent inflation slowed to 4.5% from 5.2% in April, though still representing a major upward contributor
- Vehicle prices showing heat: Car prices rose 0.9% monthly and 3.2% annually, indicating persistent inflationary pressures
- Services inflation robust: Remained at 3.2% annually, with travel services jumping 8.4% and cell phone prices surging 7.2% monthly
- Broader price pressures: 47% of the core basket now sits above 3% inflation, up from 42% in April
Several categories showed unexpected strength during the month. Household operations were driven higher by a 7.2% monthly surge in cellular service prices, while the clothing category saw notable increases in jewelry (10.1%) and children’s apparel (5.7%). Recreation services remained firm with travel costs jumping 8.4%.
The shelter component, typically the largest contributor to inflation, showed signs of cooling with rent increases moderating to 4.5% annually from April’s 5.2% pace. However, this still represents one of the strongest drivers of year-over-year price growth, highlighting the persistent housing affordability challenges facing Canadian consumers.
Link to official Canada Consumer Price Index (May 2025)
Perhaps most concerning for policymakers is the broadening of inflationary pressures, with 47% of the core basket now experiencing price growth above 3% compared to 42% in April. This expansion in price pressure breadth suggests inflation may be becoming more entrenched across the economy.
Market Reactions
Canadian Dollar vs. Major Currencies: 5-min
The Canadian dollar, which had been consolidating with a slight bearish tilt leading up to the CPI release, moved slightly higher after the report indicated stronger core inflationary pressures that dampened the odds of July BOC easing.
CAD moved briefly higher across the board for roughly an hour after the numbers were printed, before resuming its slump against CHF (-0.85%), JPY (-0.29%) and GBP (-0.24%) but fighting to hold its ground against its comdoll rivals AUD (+0.04%) and NZD (+0.12%).
