Today's Report Shows Inflation Remains a Concern
By Scott Westlake
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The Consumer Price Index (CPI) rose 1.7% year-over-year in May, matching the 1.7% increase in April.

A reduced rent price increase and a decline in travel tour prices put downward pressure on the CPI in May compared with one year earlier. Smaller declines for gas and cellular services put upward pressure on the index compared with the previous month.

Excluding energy, the CPI rose 2.7% in May, following a 2.9% increase in April.

The CPI rose 0.6% in May, and on a seasonally adjusted monthly basis, it was up 0.2%.

The shelter component grew more slowly year over year in May, rising 3.0% following a 3.4% increase in April.

Rent prices rose 4.5% yearly in May, compared with a 5.2% increase in April. Rent price growth slowed the most in Ontario, with prices rising 3.0% in May following a 5.4% increase in April. The increased availability of rental units, coupled with slower population growth compared with the previous year's spring, contributed to the slowdown in rent price growth in May. Given Ontario's considerable weight nationally, these effects alone were enough to offset faster price growth in seven other provinces.

The mortgage interest cost index decelerated for the 21st consecutive month in May (6.2%)  after rising 6.8% in April.

Year over year, prices for travel tours fell 0.2% in May after rising 6.7% the previous month. Prices for air transportation decreased 10.1% on an annual basis in May, following a 5.8% decline in April. 

Gasoline led the decline in consumer energy prices again this month, down 15.5% year over year in May after declining 18.1% in April. Gasoline prices in May remained below May 2024 levels, primarily due to the removal of the consumer carbon levy.

In May 2025, gasoline prices increased 1.9% month over month. The increase was primarily attributed to higher refining margins, partially due to higher switching costs to summer blends.

Prices for new passenger vehicles rose 4.9% yearly in May, after increasing 4.6% in April. Higher prices for some electric cars primarily drove this faster price growth.
After last month's unpleasant inflation surprise, May's data came in as expected. Top-line inflation continues to be restrained as the impact of the end to the consumer carbon tax offset changes in energy prices. Core inflation had good news, too, as all four measures cooled amid falling travel, tour and rent prices. The ongoing challenges in the housing market (particularly in Ontario) should help temper further rent gains in the coming months.

After last month's uptick in core inflation, some give-back was expected. The labour market remains soft, and tepid domestic demand growth should keep a lid on inflationary pressures. Retail sales were weaker than expected. As has been the case this year, the outlook heavily depends on how trade negotiations evolve, but the soft economic backdrop should give the BoC space to deliver two more cuts this year. 

Bottom Line

The Bank of Canada has said that it doesn't want to see a tariff problem turn into an inflation problem. It has also suggested that its CPI trimmed-mean and CPI Median measures of core inflation might be biased upward because of measurement issues (They are expected to publish more about this in the future.) 

While the Bank won't give up its hard-won credibility as an inflation fighter, further easing in economic growth will likely force the central bank to cut rates one or two more times this year. 
 
 

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