Inflation holds steady at 1.7% in May as rent hikes cool

A shopper pushes a shopping carts as they leave a Real Canadian Superstore in Ottawa on Tuesday, June 25, 2024. THE CANADIAN PRESS/Sean Kilpatrick

The annual pace of inflation held steady at 1.7 per cent in May as cooling shelter costs helped tame price pressures, Statistics Canada said Tuesday.

Shelter costs rose three per cent in May, StatCan said, marking a slowdown from 3.4 per cent in April.

The agency singled out Ontario as the major source of rent relief in the country. Slowing population growth and a jump in new supply helped dampen rent hikes in May.

Mortgage interest costs meanwhile decelerated for the 21st consecutive month amid lower interest rates from the Bank of Canada.

Economists had broadly expected inflation would remain unchanged heading into Tuesday.

The removal of the consumer carbon price continues to drive down gasoline costs annually, StatCan said, but a smaller monthly decline in prices at the pump from this time last year limited the drop.

The cost of food from the grocery store rose 3.3 per cent annually in May, half a percentage point lower than the hike seen in April.

Lower prices on travel tours and air transportation also dampened inflation last month.

StatCan said the cost of a new vehicle accelerated in May, rising 4.9 per cent annually, thanks in large part to more expensive electric vehicles.

Inflation excluding tax changes – stripping out influences from the carbon price removal – was also steady at 2.3 per cent last month.

Bank of Canada governor Tiff Macklem said last week that the central bank would be paying closer attention to this figure as it tries to look past temporary impacts to see what’s really happening to inflation amid tariffs.

The central bank’s closely watched core inflation metrics meanwhile ticked down a tenth of a percentage point to three per cent in May.

BMO chief economist Doug Porter said in a note to clients Tuesday that core inflation was moving in the right direction, but likely not enough on its own to convince the Bank of Canada to cut again following two consecutive rate holds in recent decisions.

The central bank will get a look at June inflation figures before its next rate announcement on July 30, and Porter said monetary policymakers will likely need to see underlying inflation drop below three per cent to warrant a return to cuts.

“The data over the next five weeks will ultimately drive the decision, but the odds of a July cut are lower now on the so-so CPI,” he said.

A separate release from StatCan on Tuesday gave a flash estimate for manufacturing sales in May. Early signs suggest a 1.3 per cent monthly drop, coming off a 2.8 per cent decline in April as Canada’s tariff dispute with the U.S. weighed on activity.

TD Bank senior economist Andrew Hencic said in a note Tuesday that the trade war is likely to keep the economy soft in the months ahead, dampening inflation pressures going forward.

“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 said.

This report by The Canadian Press was first published June 24, 2025.

By Craig Lord