Canadian retail prices rose 0.3 per cent in May, Statistics Canada reported Tuesday, following a similar rise the preceding month.

The annual inflation rate — that is, over the 12 months ending in May — was 1.4 per cent, lower than the 1.8 per cent rate of the previous month.

Factoring out more volatile food and energy prices, the so-called core rate had annualized prices advance 1.8 per cent, following a 1.9 per cent rise in the year ending in April.

Economists pay closer attention to the core rate, because it is the one on which the central bank bases its interest rate decisions. But economists are mixed on when the Bank of Canada will raise rates.

"The data was greeted by a sigh of relief, because May inflation was cooler than April’s sizzling numbers; however, the data was generally stronger than analysts expected," Vancouver-based Citizens Bank said in a commentary.

"As such, there is nothing to dissuade the (Bank of Canada) from hiking again at its next meeting on July 20th."

Bank of Montreal economist Doug Porter found little immediate direction in the data. "Both figures were basically as expected," he said.

"There's not much new news here for the Bank of Canada, with core inflation perhaps a touch lighter than they initially expected. There's no urgency, but over time the trend will be to get those interest rates at least back to inflation, if not a bit higher."

Porter expected the central bank would pause after another quarter-point hike to 0.75 per cent next month, while the TD Bank said Tuesday it believes Carney will bring the policy rate to 1.5 per cent by year's end, "barring any financial market flareups."

There was little reaction in the currency markets. The Canadian dollar traded 0.36 of a cent higher to 97.98 cents US at 11 a.m. ET.

Overall, energy prices rose 6.2 per cent between May 2009 and May 2010, following a 9.8 per cent increase during the 12-month period to April. Gasoline prices were 6.9 per cent higher in May on the year, well under the 16.3 per cent annual gain seen in April.

Excluding volatile energy costs, on an annual basis the CPI rose one per cent in May, after increasing 1.1 per cent in April.

On a seasonally adjusted monthly basis, the CPI declined 0.1 per cent in May, after remaining unchanged from March to April.

Regionally, consumer prices rose in all provinces in the 12 months to May, but at a slower pace than in April. Ontario and three of the four Atlantic provinces registered the largest year-over-year increases.

"Canadian inflation is going nowhere fast," Porter said. "It's neither sprinting higher, nor falling dangerously close to deflation terrain [as in the U.S.]. While the HST will give it a big bump higher in two months, at least temporarily, it appears that underlying inflation trends remain quite benign."