Canada’s annual inflation rate increased to 3.2% in May, up from 2.8% in April, marking the highest level since late 2023. The rise was mainly driven by higher gasoline and food prices.

Gasoline costs surged more than 33% compared with a year earlier, while food inflation accelerated to 4.3%, led by increases in fresh fruit and vegetable prices. Air travel also became more expensive as airlines faced higher fuel-related operating costs.

Despite the jump in headline inflation, many economists believe inflation may have reached its peak for 2026. Falling global oil prices following easing geopolitical tensions have improved the outlook for energy costs in the coming months, although risks remain if energy markets become volatile again.

Food prices continue to be a significant concern. Fresh fruit prices rose over 5%, while fresh vegetables increased 9% year-over-year. Tomato prices experienced particularly sharp gains due to unfavorable weather conditions and reduced planting activity linked to U.S. trade tariffs. Economists note that food inflation has remained above the overall inflation rate for more than a year and continues to influence consumers’ perceptions of rising living costs.

There was some positive news in the housing sector. Shelter inflation eased slightly, and rental price growth slowed compared with April. Analysts say this trend could help improve affordability and reduce pressure on overall inflation over time.

Most economists do not expect the Bank of Canada to change interest rates in the near term. While inflation remains elevated, underlying price pressures have been relatively stable. Ongoing geopolitical uncertainty, trade concerns, and a weak economic backdrop are expected to keep policymakers cautious.

Some economists warn that higher energy costs could still filter into broader prices over the coming months, but overall they view the current inflation picture as manageable rather than alarming.