There was no change to Canada’s annual inflation rate in May, holding steady at 1.7%. Inflation slowed considerably in April as the consumer carbon tax ended. Tariffs appeared to have little impact on prices in May, but ongoing trade tensions could push prices higher in the months to come. This has been a significant concern for the Bank of Canada (BoC) as it held interest rates steady over the second quarter. Here are the details from May’s inflation report.

• Canada’s annual inflation rate was 1.7% in May, unchanged from April, which was the lowest rate in seven months. Economists were expecting the 1.7% rate, according to a Bloomberg survey.
• The growth in shelter prices softened in May. This was driven by moderating inflationary pressures on rent and mortgage costs. The BoC’s aggressive rate cuts in 2024 and early 2025 have helped push mortgage rates down.
• Health care costs accelerated, while gasoline prices fell at a slower pace in May compared to April.
• Two key measures of core inflation, which excludes more volatile items such as food and energy, slowed in May. The ongoing decline suggests broad-based price pressures are easing but still remain relatively high.
• The BoC is closely monitoring the path of inflation as trade tensions persist. Tariffs are expected to push inflation higher. The BoC has noted it is examining how tariffs are impacting inflation, the labour market and the Canadian economy before making any further adjustments to monetary policy.

For now, headline inflation remains below the BoC’s 2% target. Still, risks to the upside persist, which has kept the BoC from lowering interest rates at recent meetings. An uncertain outlook for Canada’s economy lingers, weighing on household and business confidence and spending decisions. Canadian Prime Minister Mark Carney said he recently spoke with US President Donald Trump about trade negotiations and other critical matters.

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