| Consensus | Consensus Range | Actual | Previous | |
| CPI - M/M | 0.8% | 0.6% to 0.8% | 1.0% | 0.4% |
| CPI - Y/Y | 3.0% | 2.9% to 3.1% | 3.2% | 2.8% |
| Core CPI - M/M | 0.7% | 0.1% | ||
| Core CPI - Y/Y | 1.6% | 1.5% |
Highlights
Following its June policy meeting, the Bank of Canada cited limited evidence of higher energy prices passing through to other consumer prices as one of the reasons for remaining on hold, and this May CPI report will not change their calculus regarding the Iran war's near-term impact on headline inflation.
Canada's Consumer Price Index jumped significantly in May up 1.0 percent on a monthly basis, after experiencing a 0.4 percent uptick in April. This exceeded expectations for a 0.8 percent jump in the Econoday survey of forecasters.
Compared to May 2025, the CPI is up 3.2 percent, accelerating from the 2.8 percent pace set in April, and just above expectations for a 3.0 percent spike in the Econoday survey of forecasters.
Excluding food and energy prices, the CPI rose 0.7 percent on a monthly basis, following a 0.1 percent bump up in April. Compared to a year ago, the core CPI is up 1.6 percent in May vs. a 1.5 percent jump in April.
The average of the Bank of Canada's 'Alternative measures' of annual core inflation for May is 2.3 percent, compared to 2.2 percent in April.
The overall surge in headline inflation is no surprise, fueled by higher energy prices, which jumped 3.3 percent from April, and +22.2 percent on an annual basis. Gasoline prices soared by 5.6 percent from the previous month and +33.2 percent on an annual basis.
However, excluding gasoline, the CPI still rose 2.2 percent year-over-year in May, following a 2.0 percent increase in April.
The underlying inflation data should not give the Bank of Canada any reason, yet, to adjust its holding pattern as it assesses the impact of energy prices on the Canadian economy.
Year over year, consumers paid more for travel tours in May (+0.7 percent) compared with April (-11.0 percent). On a year-over-year basis, airfares rose 7.4 percent in May, following a 1.7 percent decline in April.
The tariffs/supply chain impact is in food prices, up 3.8 percent year-over-year.
Shelter price growth continued to slow down but remains elevated rising 1.7 percent year over year, easing off a bit from April's 1.8 percent annual growth rate.
Prices for goods are up 4.8 percent from a year ago in May, after a 4.4 percent jump in April, with the cost of durable goods up just 1.9 percent. Meanwhile, service price inflation increased by 2.0 percent in May, following a 1.7 percent increase in April.
Market Consensus Before Announcement
Energy prices are seen as the culprit along with food in lifting inflation with expectations calling for an annual increase to 3.0 percent in May, up from 2.8 percent in April.
Definition
The Consumer Price Index (CPI) is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly and annual changes in the CPI provide widely used measures of inflation. The policy target measure for the Bank of Canada (BoC), the annual CPI rate can be distorted by swings in the more volatile subsectors so the central bank also monitors an adjusted measure of the CPI that excludes a range of volatile categories in order to get a better handle on underlying trends.
Description
The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In countries such as Canada, where monetary policy decisions rest on the central bank's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments.
Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
As the most important indicator of inflation the CPI is closely followed by the Bank of Canada. The Bank of Canada has an inflation target range of 1 percent to 3 percent but focuses on the 2 percent midpoint. It uses the CPI and three measures of the underlying rate as the prime inflation indicators. Markets also look at core rate which excludes food and energy.