Energy prices are expected to increase inflation – National

OTTAWA – High oil and gasoline prices are expected to boost inflation when Statistics Canada reports the consumer price index for May on Monday.

But the devil will be in the details as economists look for any sign that the cost at the gas pump is causing inflation to heat up elsewhere in the economy.

TD Bank senior economist Andrew Hencic says gasoline prices rose in May, so that will push inflation higher for the month, but oil prices have since come off their highs in recent days.

The price of oil fell after the US and Iran reached a memorandum of understanding to end the war and reopen the Strait of Hormuz to tanker traffic.

The two sides must now hammer out the terms for a final deal to end the fighting, including details about the future of Iran’s nuclear program.

So more important than the headline inflation rate, Hencic said he will look to see what prices beyond gasoline are doing in Monday’s report.

“Everybody went to the gas station and saw the price when they went to fill up the tank. But it’s more than just that,” he said.

“If those core measures continue to behave well, then we don’t see a significant pick-up in inflation across a broader set of goods and services. That’s really what we’re looking for.”

Statistics Canada reported that the annual inflation rate was 2.8 per cent in April, up from 2.4 per cent in March, driven by a 19.2 per cent year-over-year increase in energy prices. Excluding gas prices, the consumer price index rose two percent in April.

The consensus among economists is that the annual rate of inflation rose to three percent in May, according to LSEG Data & Analytics.

The Bank of Canada, which has a two percent inflation target, has said there has been limited evidence of a broad-based pass-through of higher energy prices at the expense of other things so far.

In announcing its decision to keep its interest rate at 2.25 percent earlier this month, the central bank said it was continuing to review the impact of the war in the Middle East, but noted that it will not allow high energy prices to translate into persistent inflation.

RBC economist Abbey Xu says the central bank’s preferred measure of core inflation is around two percent.

“The more important question is whether higher energy costs start to spread to the rest of the consumer basket, and so far, our expectation is that core inflation will remain significantly lower than the headline numbers suggest,” Xu said.

RBC expects inflation to rise to three percent for May year-on-year.

Xu says she will review the report on Monday for any signs that higher energy prices are spreading to other categories.

“Our expectation is still that the increase in headline inflation will still be driven by limited categories, especially the energy component. And that so far, we are not seeing many transitions,” Xu said.

The inflation report comes as economists look for signs of a rebound in the economy in the second quarter after a weak start to the year. The Canadian economy shrank by 0.1 percent on an annual basis for the first three months of the year.

The Bank of Canada’s next interest rate decision is set for July 15, when it will also release its latest monetary policy report, which will include its forecasts for the economy.

This report from The Canadian Press was first published on June 20, 2026.

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