Canadian Consumer Price Index (May 2025)

Cooling rents help temper May inflation 

• Headline CPI inflation for May came in at 1.7% year-on-year (y/y), maintaining the pace from April and in line with expectations for a 1.7% y/y print. 
• The deceleration was due to a slowdown in rent inflation (4.5% y/y vs. 5.2% in April) and falling prices for travel tours (-0.2% y/y).
• Inflation in new car prices ticked up, now 4.9% y/y, lifted higher by rising costs for electric vehicles.  
• The Bank of Canada's (BoC) preferred "core" inflation measures both ticked down to 3.0% y/y in May. The CPI excluding the eight most volatile components and indirect taxes (CPIX) and CPI excluding food and energy both followed the same pattern, ticking down to 2.5% y/y from 2.6% y/y the month prior. On a seasonally adjusted basis, all four measures of core inflation cooled in May.

Key Implications

• After last month's unpleasant inflation surprise, May's data came in largely as expected. Top line inflation continues to be restrained as the impact of the end to the consumer carbon tax offset changes in energy prices. For core inflation there was good news too, as all four measures cooled amid falling travel tour and rent prices. The ongoing challenges in the housing market (particularly in Ontario) should help to temper further gains in rents in the coming months.
• After last month's uptick in core inflation some giveback was expected. The labour market remains soft and tepid domestic demand growth should keep a lid on inflationary pressures. As has been the case this year, the outlook is heavily dependent on how trade negotiations evolve, but we believe that the soft economic backdrop should give the BoC space to deliver two more cuts this year. 

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