Energy prices expected to push inflation higher for May, economists say

A person pumps gas in Montreal on Thursday, April 2, 2026. THE CANADIAN PRESS/Christinne Muschi

OTTAWA — High oil and gasoline prices are expected to push inflation higher when Statistics Canada reports its consumer price index for May on Monday.

But the devil will be in the details as economists look for any signs that the cost at the gas pump is causing inflation to heat up elsewhere in the economy.

TD Bank senior economist Andrew Hencic says gasoline prices rose in May, so that will push inflation higher for the month, but oil prices have since come off their highs in recent days.

The price of oil fell after the U.S. and Iran struck a memorandum of understanding to bring the war to an end and reopen the Strait of Hormuz to tanker traffic.

The two sides must now hammer out terms for a final agreement to end the fighting, including details about the future of Iran’s nuclear program.

So more important than the overall inflation rate, Hencic said he will be looking to see what prices are doing beyond gasoline in the report Monday.

“Everybody’s gone to the gas station and saw the price when they went to fill up the tank. But it’s more than just that,” he said.

“If those core measures continue to be well-behaved, then we don’t see a significant pickup in inflation across a broader set of goods and services. That’s really what we’re looking for.”

Statistics Canada reported the annual inflation rate was 2.8 per cent in April, up from 2.4 per cent in March, driven by a 19.2 per cent year-over-year jump in energy prices. Excluding gas prices, the consumer price index was up two per cent in April.

The consensus among economists is that the annual inflation rate rose to three per cent in May, according to LSEG Data & Analytics.

The Bank of Canada, which has a two per cent target for inflation, has said there has been limited evidence of a broad-based pass-through of higher energy prices to the cost of other things so far.

In releasing its decision to hold its policy interest rate at 2.25 per cent earlier this month, the central bank said it was continuing to look through the impact of the war in the Middle East, but noted it will not let higher energy prices become persistent inflation.

RBC economist Abbey Xu says the central bank’s preferred measures of core inflation are sitting at about two per cent.

“The more important question is whether higher energy costs start spreading through the rest of the consumer basket and so far, our expectation is that underlying inflation remains considerably more subdued than the headline numbers suggest,” Xu said.

RBC is forecasting inflation to rise to three per cent for May year-over-year.

Xu says she will be scrutinizing the report on Monday for any signs that higher energy prices are spilling over to other categories.

“Our expectation is still that the uptick in headline inflation is still driven by limited categories, especially the energy component. And that so far, we’re not seeing a lot of pass-throughs,” Xu said.

The inflation report comes as economists look for signs of a rebound in the economy in the second quarter after a weak start to the year. The Canadian economy contracted 0.1 per cent on an annualized basis for the first three months of the year.

The Bank of Canada’s next interest rate decision is set for July 15 when it will also release its latest monetary policy report which will include its forecasts for the economy.

Craig Wong, The Canadian Press