Canada’s headline inflation rate held at 1.7% in May, matching April’s pace, as shelter costs eased. Core inflation measures ticked down but continue to remain elevated.
The pause in annual inflation came from a mix of rising and falling costs. Travel tour prices dipped slightly (-0.2%), and rent increases also slowed, rising 4.5% year-over-year compared to 5.2% in April. On the flip side, vehicle prices climbed 4.9%, driven in part by rising costs for certain electric models.
The Bank of Canada’s preferred core inflation measures—CPI-trim and CPI-median—both edged down to 3.0% in May. CPI-median was also revised down to 3.1% for April.
While May’s inflation data offered some reassurance, core readings remain well above the Bank of Canada’s 2% target, which is still a concern for policymakers.
“After last month’s unpleasant inflation surprise, May’s data came in largely as expected,” said TD’s Andrew Hencic. “Top line inflation continues to be restrained as the impact of the end to the consumer carbon tax offset changes in energy prices.”
Gasoline prices continued to fall due to the end of the consumer carbon price (-15.5%), StatCan noted.
BMO’s Douglas Porter described May’s figures as “broadly similar” to April’s, calling it “a deceptively calm headline with core hovering too far above the 2% target for comfort.”
He also pointed out that inflation is becoming more widespread, with 47% of the core basket now running above 3%, up from 42% in April.
Scotiabank’s Derek Holt also flagged core inflation as a key concern. “Canada has been in a prolonged state of high core inflation readings dating back over the past year with no signs that the BoC has contained inflationary pressures to date, let alone addressed forward looking risks,” he wrote in a research note.
Rate cut less likely as trade uncertainty lingers
While May’s inflation data met expectations, the path to rate cuts remains uncertain for the BoC.
With core inflation still hovering well above the Fed’s target, Porter sees the central bank needing to see “much more improvement before it’s convinced that underlying inflation is heading back to 2%.”
With another CPI report, along with jobs and GDP data due before the July meeting, there’s still a chance the Bank could get the confirmation it needs.
But trade negotiations may weigh even more heavily on July’s rate decision. Holt pointed out that a potential Canada–U.S. agreement on trade and security is approaching its 30-day deadline next month.
Hencic agrees that trade negotiations will play a key role in the Bank’s next move, but adds that broader economic softness could still open the door to further cuts this year, though he doesn’t specify when.
“As has been the case this year, the outlook is heavily dependent on how trade negotiations evolve, but we believe that the soft economic backdrop should give the BoC space to deliver two more cuts this year,” he noted.
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Last modified: June 24, 2025