Inflation jumps to 8-year high
Loonie closes above $1.03 US on anticipation of interest-rate hike
Gas prices pushed Canada's inflation rate to 3.7 per cent last month, the highest rate in more than eight years.
On a month-to-month basis, prices rose 0.7 per cent in May from April, Statistics Canada said.
The agency said gasoline prices were the main reason behind big increase.
Prices at the pump rose by 29.5 per cent on a year-to-year basis, an even higher jump than during Hurricane Katrina in 2005. Statistics Canada's gas price index is now just below the peak reached in July 2008.
Overall, energy prices have gone up by 16.6 per cent over the last 12 months.
The Canadian dollar spiked almost immediately after the news, gaining more than a cent to $1.0279 US, as currency traders bet that the Bank of Canada would increase interest rates sooner rather than later. It closed up 1.27 cents to $1.0303 US.
Although the topline gain on inflation was impressive, economists largely dismissed it as being due to temporary factors and not indicative of real runaway inflation.
"The upside surprise to the headline inflation numbers is a total head fake," Scotiabank economists Derek Holt and Karen Cordes Woods noted. "Adjusting for seasonality, inflation still remains well contained."
He expects June's report will bring the headline inflation number back down to earth as it will reflect lower gas prices.
Gains were largely driven by energy, but other items also showed sizable gains, including prices for food purchased at stores, which rose 4.2 per cent from a year ago.
Regionally, the inflation rate was higher in eight of the 10 provinces, with Nova Scotia recording the greatest annual increase, at 4.6 per cent.
The Bank of Canada's core inflation index, which strips out more volatile items like food and energy, was up 1.8 per cent in May. That's higher than the 1.6 per cent level in April.