Statistics Canada released Canada’s consumer price index data yesterday, which showed that Canada’s annual inflation rate accelerated in May, once again due to higher gasoline prices. The conflict in the Middle East closed the Strait of Hormuz at the end of February, which limited the global supply of oil and pushed oil prices higher. Oil prices have since come down as the US and Iran work towards a peace deal, but they remain elevated compared to prices before the conflict began. Inflationary pressures are expected to persist this year despite the reopening of the critical waterway after an interim peace deal was reached late last week.

• Canada’s annual inflation rate picked up to 3.2% in May from 2.8% in the previous month. This was the highest rate of annual inflation since December 2023, and it came in above economists’ expectations, based on a Bloomberg survey.
• May’s increase came amid a 33.2% year-over-year increase in gasoline prices. The Mideast conflict continued to push up energy prices. The growth in food prices also picked up in May over April.
• On a monthly basis, consumer prices rose by 1.0% in May, the largest increase since February 2025.
• The annual core inflation rates – trim and median – were unchanged at 2.0% and 2.1%, respectively, in May. Core measures remain close to the Bank of Canada’s 2% target, suggesting price pressures are mostly contained to energy prices.

The surge in inflationary pressures has mostly come due to gasoline prices, which have taken a bite out of Canadians’ discretionary spending. Yesterday, Iran noted that there were productive negotiations as the US and Iran try to reach a permanent peace deal. Negotiations remain ongoing, but the potential end to the conflict and the supply of oil back on the move may raise markets’ hopes for the global economy.

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