Canada's annual inflation rate surges to a 29-month high of 3.2% in May

Canada's annual inflation rate surged to a 29-month high of 3.2% in May, driven by higher crude oil prices, but is expected to ease in June following an Iran peace deal.

Canada's annual inflation rate in May accelerated more than expected to 3.2%, a 29-month high, data showed on Monday, as ‌the impact of higher crude oil prices due to the Iran conflict continued to filter through gasoline costs.

Analysts polled by Reuters had estimated the annual inflation rate to touch 3% in May, up from 2.8% in April. The prices, however, are already showing a major reversal in June ‌after an interim peace deal was signed between the United States and Iran last week, which, analysts have said, could help ease ‌the headline number in June.

Statistics Canada said excluding the impact of gasoline prices, the consumer price index still posted a higher increase of 2.2% in May from 2% in April led by elevated cost of food, recreation and alcoholic beverages. The monthly inflation rate rose to 1% in May, exceeding expectations of 0.8% rise. ⁠This is ​the highest monthly rise in 15 ⁠months.

Gasoline prices in May rose by 33.2% on a year-over-year basis. Consumers in May shelled out more for gasoline than from its previous peak four years ago ⁠when Russia invaded Ukraine, StatsCan said. This led to an increase in the cost of transportation, which accounts for almost 18.5% of the CPI basket, posting ​a 9% annual increase last month.

The inflation number is not likely to alter Bank of Canada's assessment of underlying inflation as ⁠it said earlier this month that it was seeing limited evidence higher energy prices were fueling broad-based inflation. Cost of food, which also contributes around 17% of the ⁠CPI basket, ​rose 3.8% in May from 3.5% in April, StatsCan said, adding that this was fueled by an increase in prices of fresh fruits and vegetables which rose by 5.3% and 9% respectively in May.

The impact of higher transportation and food prices were largely offset ⁠by shelter costs, the biggest contributor to the CPI basket at close to 30%. Shelter costs rose by 1.7% in May following ⁠a 1.8% increase in April, ⁠data showed, especially led by a reduction in mortgage costs which shrunk by 0.2% last month. The closely tracked measure of core inflation stayed unchanged in May.

CPI-median, the centermost component of the CPI basket, was at ‌2.1%, while CPI-trim, ‌which excludes the most extreme price changes, was at 2%.