Inflation in Canada rose 3.6% in May from a year ago, the fastest annual gain since May 2011, according to Statistics Canada.
Consumer prices in May were also up from a month earlier. In April, Canada’s inflation rate rose 3.4%. Economists were predicting a 3.5% increase in the inflation rate in May.
Core inflation, which excludes food and energy prices, rose to 2.3% in May, its highest reading since 2009.
The Bank of Canada, which is responsible for keeping inflation in check, is brushing off the spike in consumer prices, arguing that it is being driven by one-off factors. The annual reading is distorted by year-ago comparisons when price fell sharply at the beginning of the pandemic, a phenomenon known as the "base effect."
Still, the central bank says it expects continued excess supply in the economy will put downward pressure on prices once the base effect declines in coming months.
The Bank of Canada has said it expects inflation to remain around 3% over the next several months before moderating. However, if inflation proves to be persistent, it could force the central bank to bring forward interest rate increases that investors aren’t anticipating until late next year (2022).
Canada’s housing market is also factor in the inflation rate. Amid robust demand for single family homes and rising costs for materials such as lumber, the costs of buying a home are up 11.3% from a year ago, the largest annual increase since 1987.
