Costlier energy unexpectedly pushed Canada's annual inflation rate to a 27-month high of 2.3 percent in May from 2.0 percent in April, while a rise in the core rate also put pressure on the Bank of Canada to tone down its low-inflation concerns. Statistics Canada reported on Friday that core inflation jumped to 1.7 percent, the highest since July 2012, from 1.4 percent in April. The median forecasts in a Reuters survey of economists were for 2.1 percent inflation overall and 1.5 percent for core, which strips out volatile elements.
"The low-inflation ship has sailed in Canada, and I think the Bank of Canada pretty much has to change their rhetoric as of the next meeting," said Bank of Montreal chief economist Doug Porter.
Statistics Canada also reported retail sales rising by 1.1 percent in April, nearly twice expectations, to a record C$41.62 billion ($38.54 billion).
The Bank of Canada aims to keep inflation at 2 percent and within a band of 1 to 3 percent, but inflation has for long generally been in the bottom half of that range, and the central bank has flagged low inflation as one of its biggest concerns.
In April it projected second-quarter inflation of only 1.6 percent overall and 1.2 percent for core. May's inflation rate was the highest since the 2.6 percent registered in February 2012. The year-over-year rise in prices was led by an 8.4 percent jump for energy, including 6.3 percent for gasoline, 21.3 percent for natural gas and 7.0 percent for electricity. "I think there is more to this than just food, energy and the Canadian dollar. I do think inflation is starting to creep back up again," Porter said.
Indeed, the monthly rise in core prices was identical to the rise in overall prices, 0.5 percent.
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