May 2025 CPI: Inflation holds steady, giving the Bank of Canada some space to breathe.

“We can breathe a little easier since inflation behaved this month. Tariffs remain a risk, but they’re not currently impacting price stability. After the Bank’s second straight pause, the inflation data should ease Governing Council members’ inflation concerns, at least for now. Strip out energy effects — mostly from carbon tax removal — and inflation has really held steady on many indicators. With economic growth anticipated to slow, the Bank will likely shift focus in the next month to potential downside risks.”

Summary

• Canada’s headline inflation held steady at 1.7% in May, matching economists’ consensus of 1.7%. The primary driver was lower gasoline prices due to the removal of the federal carbon tax.
• On a monthly basis, overall CPI rose 0.6% (or 0.2% after seasonal adjustment).
• Bank of Canada core inflation measures remained unchanged: the average of Trim and Median stayed at 3%, and the measure excluding food and energy was 2.6%, the same as April. Core inflation momentum dipped below 3% in May.

CPI Breakdown

• Gasoline prices dropped 16% in May, after an 18% fall in April, mainly reflecting carbon tax removal. This will continue to exert downward pressure on inflation this year. Excluding gasoline, annual inflation went from 2.5% in April to 2.6% in May; excluding the broader energy category, it rose to 2.7%.
• Goods prices were essentially flat year-over-year in May. However, durable goods are gaining momentum for the fourth month in a row: household appliances climbed 2.6% after a year of depressed prices.
• Services inflation grew 3.2% and has been comfortably stable over the past few months. What once looked like sticky price growth is easing as the labour market loosens, reducing wage-pressure fears. In May, travel services fell 0.3%, which helped contain overall services inflation.
• Shelter inflation eased to nearly 3%, the slowest pace since Q1 2021, as both mortgage interest costs and rent price growth moderates. This coincides with the slowest population growth in Q1 2025 since the pandemic, driven by federal restrictions on temporary residents, which has weakened demand for housing and rentals.

Provincial Trends

• Inflation eased in only three provinces in May. Quebec saw the largest slowdown, easing by about 0.5 percentage points. New Brunswick recorded the biggest increase at +0.7%, while British Columbia logged the highest inflation rate in May at 2.3%.

Implications

• Headline inflation is likely to hover near the 2% target in the months ahead, but the mix of offsetting factors complicates assessment: carbon tax removal pushes inflation lower, while goods prices are gradually rising. So far, Canada’s retaliatory tariffs haven’t created price pressure, although businesses have indicated intentions to make price adjustments in response.
• Market participants have trimmed the probability of a rate cut in July to about 30%.
• We expect the Bank of Canada to hold interest rates at its July meeting. April monthly GDP (released May 30) will be key in assessing whether Q2 growth is tracking flat or negative, that may shift the Bank’s assessment of risks.

Charts and tables

Sources: Statistics Canada; Canadian Chamber of Commerce Business Data Lab