Canada’s annual inflation rate climbed to 2.9% in May, up from 2.7% in April. This was unexpected, as analysts had predicted a dip to 2.6%. This rise was driven mainly by higher service prices, especially those sensitive to seasonality. Cellular services, rent, travel tours, and air transportation saw notable price hikes.

Travel tours increased by 6.9%, and air transportation by 4.5% year-over-year, both linked to travel to and from the U.S. While cell service prices fell by 19.4% in May compared to the previous year, this was a slower decline than April’s 26.6% drop.

Grocery prices increased slightly by 1.5% year-over-year in May, marking the first rise since June 2023. Month-over-month, grocery prices increased by 1.1%. This seasonal trend was driven by higher prices for fresh vegetables, meat, fresh fruit, and non-alcoholic beverages. Meanwhile, energy price inflation slowed slightly to 4.1%.

Earlier this month, the Bank of Canada lowered its policy rate to 4.75%, citing progress in curbing inflation and indicating future cuts would depend on ongoing data. With this surprise spike, the likelihood of another cut has decreased, with market bets dropping from 65% to 54%.

Click here to view the full report by Statistics Canada.