Canada’s inflation rate skyrockets to 7.7%, largest increase since 1983

The costs of gas, food and travel are making the average Canadian's life more expensive.

Canada's annual inflation rate jumped to 7.7 per cent in May, the fastest pace of rising consumer prices in nearly four decades, Statistics Canada reported Wednesday.

Not since January 1983 have the costs of Canadian goods and services accelerated so quickly, adding pressure to the Bank of Canada to raise interest rates again in the coming weeks to cool the economy.

The acceleration was largely due to higher prices for gasoline, which grew 12 per cent in May compared with a slight decline of 0.7 per cent in April. Excluding the cost of gas, the Consumer Price Index grew 6.3 per cent in May.

Higher prices for hotels and restaurants also contributed to the increase. The cost of travel accommodations surged 40.2 per cent - most notably in Ontario, where travel costs grew 56.8 per cent after COVID-19 restrictions kept the industry shuttered in May 2021.

Food costs at restaurants grew 6.8 per cent in May.

Grocery prices also increased to 9.7 per cent as a result of supply chain disruptions, high demand, droughts and Russia's invasion of Ukraine.

Edible fats and oils had their largest increase on record at 30 per cent, mainly driven by the higher cost for cooking oils, Statistics Canada said. Fresh vegetables including onions, peppers and carrots grew 10.2 per cent. Meat prices rose to nine per cent, but at a slower pace than the 10.1 per cent rise in April.

There's no single story behind why food prices have gone up. We're seeing sticker shock in every aisle of the grocery store, and there's a different story in every aisle, too," said Douglas Porter, chief economist at BMO Financial Group.

Porter noted that rising gas prices play a role in rising food prices because the cost to ship food increases when energy prices rise.

Think about all the trucks and trains that ship these items, and the energy costs to harvest food. That all plays a role in higher grocery prices," Porter said.

Higher costs are on the horizon, said research group Capital Economics in a note Wednesday morning.

May's CPI data all but guarantees that the Bank of Canada will raise interest rates by a larger 75 bp next month, particularly with headline inflation on track to accelerate to around 8.5% in June," wrote economist Stephen Brown at Capital Economics.

One item that has not kept pace with most rising costs is wages. The average hourly wage rose 3.9 per cent year over year in May, meaning that prices grew faster on average than salaries over the past 12 months.

Jacob Lorinc is a Toronto-based reporter covering business for the Star. Reach him via email: jlorinc@thestar.ca