Canada's consumer price index hit 2.3 per cent in May, the first time in more than two years that the inflation figure has been above the two per cent level, and the new rate pushed the loonie higher.

Economists had been expecting the inflation rate to come in at two per cent, the same level in April. But an unexpectedly large jump in energy prices moved the rate higher.

The so-called "core" rate, which strips out volatile items like food as well as energy prices, increased from 1.4 per cent to 1.7, so there's a broad-based uptick in prices.

'There is more than just food, fuel and the currency at play.'- Doug Porter, BMO economist

"The low inflation ship has sailed," BMO economist Doug Porter said of the numbers. "While both core and headline inflation have been pumped up by the early-year slide in the Canadian dollar, there is more than just food, fuel and the currency at play."

Statistics Canada singled out higher prices for meat, traveller accommodation and electricity. Consumers are paying 10 per cent more for beef than at the start of the year. Prices for fresh or frozen pork have risen by 12.2 per cent since the start of the year. Overall energy prices have increased 8.4 per cent since the same time last year.

The loonie strengthened on the news, gaining more than half a cent to trade at 93 cents US. That's notable in part because a lower loonie was one of the factors contributing to higher prices in the first place (because a dollar that's worth less requires more dollars to be spent to buy the same good or service.)

All 12 components that the agency tracks were higher, and prices were also higher in every province. 

Ontario posted the largest increase at 2.8 per cent, while British Columbia recorded the smallest at 1.5 per cent. But "higher energy prices were observed in every province," Statistics Canada said.

The 2.3 per cent showing is expecially strong considering Canada's inflation rate was as low as 0.7 per cent as recently as 7 months ago, in October 2013.

Central bank may be forced into action

At the very least, the inflation figure means Bank of Canada governor Stephen Poloz will need to tone down his
warning about the risk of low inflation, and may be forced into considering raising interest rates sooner than expected.

The core rate is now above the level the central bank was forecasting when it last revealed its policy decision earlier this month.  All things being equal, a high inflation rate usually compels central bankers to raise interest rates — tapping the brakes on an economy showing signs of overheating.

But while the inflation rate is now on the high side of the Bank of Canada's comfort zone, Porter suspects the central bank will have some patience before changing interest rates, because the inflation rate was on the lower half of their preferred band, between one and three per cent, for so long before that.

"We don’t think that the higher inflation will make the [Bank of Canada] tilt in an outright hawkish direction but rather that the dovish ‘optionality’ that it maintains in its statement could be diluted and ultimately fade over time," Scotiabank said in a research note after the inflation number came out on Friday.

Translated into English, that's Scotiabank's way of saying it also doesn't expect the central bank to be in any rush to raise rates despite the higher inflation. Rather, Scotiabank expects the central bank will be very patient to wait and see if the high inflation sticks around before moving on rates.

"Concerns about too-low inflation? So last quarter," Porter said. "Clearly the tone of the Bank’s rhetoric will change, and change significantly."