Canada's annual inflation rate rose to 2.9% in May, driven by services prices

Canada's annual inflation rate rose to 2.9% in May, largely driven by higher prices for services, Statistics Canada reported Tuesday.

The result was up from an annual inflation rate of 2.7% in April. 

Statistics Canada said the overall increase for May came as prices for services rose 4.6% from a year ago, up from a 4.2% increase in April. Prices for goods grew at the same rate as April at one per cent.

The inflation report follows a decision by the Bank of Canada, which targets an annual inflation rate of 2%, to cut its benchmark interest rate by a quarter of a percentage point earlier this month to 4.75%.

The inflation reading, along with the upcoming June inflation data, are expected to play a key role in the central bank's next rate decision, set for July 24.

TD Bank senior economist James Orlando said one bad inflation report doesn't make a trend and inflation remained below 3%, but it did speak to the unevenness of the path back to 2%. 

"For this reason, we think the BoC will likely pause at its July meeting, before cutting rates again in September," Orlando wrote in report.

Mortgage interest costs were up 23.3% compared with a year ago, while rent prices were up 8.9%.

Prices in May for travel tours rose 6.9% compared with a year ago while air transportation prices increased 4.5%.

Gasoline prices were up 5.6% compared with a year ago. 

Grocery prices rose 1.5% year-over-year in May, a tick higher compared with April, when they rose 1.4%. It's the first acceleration in grocery prices since June last year, however Statistics Canada said consumers are paying 22.5% more for groceries compared with May 2020.

This is a corrected story. A previous version misstated the day of the week in the first graf.