Royal Bank of Canada (RBC) economist Abbey Xu notes that Canadian inflation rose to 3.2% year-over-year in May, mainly due to higher energy prices, airfares and food costs. She highlights that core inflation measures remain close to the Bank of Canada’s (BoC) 2% target, with Consumer Price Index (CPI) excluding food and energy at 1.6%, indicating subdued underlying price pressures.

Energy-led rise in headline inflation

"Canadian inflation accelerated to 3.2% year-over-year in May from 2.8% in April, slightly higher than our pre-release expectation and driven largely by higher energy prices."

"Measures of core inflation remained close to the Bank of Canada's 2% target in May, while CPI excluding food and energy ticked slightly higher to 1.6% year-over-year, suggesting price growth outside the most volatile categories remained subdued."

"The Bank of Canada has repeatedly highlighted the risk that higher oil prices could eventually feed through to a broader range of goods and services prices."

"Inflation pressures continue to be concentrated in a relatively small number of categories, while broader measures of price growth remained contained."

"Overall, the May report suggests headline inflation remains heavily influenced by energy prices while underlying inflation trends continue to move broadly in line with the Bank of Canada's inflation target."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)