• The increase in CPI growth (to 2.9% year-over-year from 2.7% in April) was the first upside surprise of 2024 following a string of softer readings. 
• The headline increase largely reflected an acceleration in underlying ‘core’ measures of price growth – lower oil prices caused energy price growth to slow slightly and food price growth was little changed.
• Excluding food and energy, price growth rose to 2.9% year-over-year from 2.7% in April, with the gain led by higher travel prices (airfares, travel tours, and traveler accommodation)
• The BoC’s preferred ‘core’ median and trim measures both posted their largest increases since December with 0.3% month-over-month gains that pushed year-over-year growth rates for the median and trim measures to 2.8% and 2.9%, respectively. 
• The BoC’s trim services ex-shelter index also rose 0.3% month-over-month, by our count, with the year-over-year growth rate holding steady at 3.6%.
• The 3-month average share of the CPI basket growing at a faster than 3% rate in May (another metric the BoC has been watching closely) was little-changed by our count at 36% (and still close to ‘normal’ pre-pandemic levels)
• Bottom Line:  The acceleration in May CPI growth is the first significant upside surprise of 2024. The closely-watched 3  month growth rates for the median and trim measures ticked back above the 2% inflation target, but year-to-date (5-month average) increases are still essentially bang-on 2%. The BoC is highly data dependent, and the upside surprise in May CPI growth will put more focus on the June CPI numbers to be released ahead of the next policy rate decision in July. But softening per-capita GDP and rising unemployment also increase the odds that price growth will continue to broadly slow.

Canadian inflation rebounded slightly in May

• Year-over-year headline inflation edged higher in May but energy price growth slowed and food inflation was little changed
• BoC’s key inflation measures ticked slightly higher on three-month rolling average basis, but still close the 2% target
• The breadth of price pressures has narrowed to pre-pandemic level in Canada
• A lower six-month rolling standard deviation of ‘supercore’ prices indicated a more stable and predictable inflation environment
• Inflation for renters is increasing faster than inflation for homeowners

Source: RBC Economics