Inflation in Canada spikes to 2.4% on higher prices for food

Canadians may be feeling a price pinch as inflation rose to 2.4 per cent in May from the same month one year ago, led by higher prices for food.

That compares to a rise of two per cent in April, according to Statistics Canada's consumer price index (CPI) released Wednesday.

Year-over-year prices rose in all eight categories of the index, with notable increases in food prices, up four per cent in the 12 months leading up to May 2019 after increasing three per cent in April.

Faster-than-average growth in food prices was driven by a 16.7 per cent spike in the cost of fresh vegetables compared to a year ago, as well as a 2.9 per cent increase in the price of meat.

Durable goods got 2.5 per cent more expensive in the past year, while the cost of new vehicles rose by 4.2 per cent.

One exception was gasoline, which dipped 3.7 per cent in price compared to May 2018. 

Energy was one of the rare commodities that fell in price in the past year, by 0.1 per cent in that span. Within that, gasoline has fallen by 3.7 per cent.

If energy is stripped out, inflation would have been 2.7 per cent.

But that headline inflation number is notoriously volatile, easily skewed by individual factors. So the data agency also comes up with a so-called "core" inflation rate by tabulating the average of three other sub-rates with a lot of sectors stripped out.

The core inflation rate came in at 2.1 per cent, the highest on record since 2012.

The strong inflation reading means the Bank of Canada will be less likely to hike its own benchmark interest rate when it meets to set its policy next month.

After the inflation number was released Wednesday, investors were pegging about a six per cent chance of a rate cut next month, according to Bloomberg data.

"The acceleration in the core readings support the notion that the Bank of Canada is likely to remain on the sidelines," Toronto-Dominion Bank economist James Marple said.

"While some of the factors pushing up price growth are likely to prove fleeting, we can't discount the relatively broad-based nature of price growth in May,"  he said. "Inflation is back in Canada, at least for now."

The Canadian dollar jumped by about half a cent after the numbers were released before giving up some of those gains. Late in the morning, the loonie was changing hands at just shy of 75 cents US.