Inflation ticked up to 2.9% in May

Canada's annual inflation rate edged up to 2.9 per cent in May — an increase from 2.7 per cent in April — mostly due to higher prices for services, Statistics Canada said on Tuesday.

Some of the increase was typical of the season. Prices for cellular services, rent, travel tours and air transportation grew at a faster pace, according to the data agency.

Travel tour prices were up 6.9 per cent and air transportation prices up 4.5 per cent from the same time a year prior, both boosted by travel to and from the U.S.

Meanwhile, prices for cell services fell 19.4 per cent in May from a year prior, coming in at a slower pace from April's 26.6 per cent drop.

'Not what the Bank of Canada wanted to see'

"No bones about it, this is not what the Bank of Canada wanted to see at this point, and clearly shaves the odds of a follow-up July rate cut," wrote BMO economist Douglas Porter in a note.

The central bank's preferred measure of core inflation, which strips out volatile sectors like food and energy, was also up in May — more than economists expected.

Still, Porter noted that a cut next month isn't out of the question. June inflation data is set to be released on July 16, just over a week before the Bank of Canada's July 24 interest rate announcement.

"With inflation back on a bumpy path, the outlook for [Bank of Canada] moves is similarly bumpy," he wrote.

Rent prices rise significantly from previous month

Rental prices rose 0.9 per cent in May from the previous month. That brought the yearly pace of rent increases up to 8.9 per cent, with rent being the second-largest annual contributor to inflation.

Mortgage interest costs slowed very slightly to 0.8 per cent in May from April, and brought the annual pace of increases to 23.3 per cent.

"If there was any good news here, it was that single largest inflation driver — mortgage interest costs — relaxed a bit," wrote Porter.

Pricier groceries led by fresh fruit, veggies and meat

Grocery prices also increased slightly to 1.5 per cent year-over-year after a 1.4 per cent increase in April, marking the first increase since June 2023.

On a monthly basis, grocery prices rose 1.1 per cent. Though typical of the season, it also marked the largest increase since January 2023, StatsCan said.

Higher prices for fresh vegetables, meat (particularly fresh or frozen beef), fresh fruit and non-alcoholic beverages drove May food inflation up on a monthly basis.