Inflation jumped to 2.9% in May

Economists say new Statistics Canada data makes it less likely central bank will cut rate in July

- JOSH RUBIN

Canada's annual rate of inflation unexpectedly rose in May, putting a July interest rate cut by the Bank of Canada into question.

Statistics Canada announced Tuesday that the annual rate of inflation as measured by the consumer price index - rose to 2.9 per cent in May, up from 2.7 per cent in April. It was the first increase after four straight months of falling inflation.

A consensus of economists surveyed by Bloomberg had expected May's inflation would fall to 2.6 per cent.

BMO chief economist Douglas Porter said the Bank of Canada is now less likely to cut rates at its next meeting July 24.

"No bones about it, this is not what the Bank of Canada wanted to see at this point, and clearly shaves the odds of a followup July rate cut," Porter said. "With inflation back on a bumpy path, the outlook for BoC moves is similarly bumpy. For now, our official call remains that the next BoC rate cut will be in September, and this report does nothing to move that needle."

Pedro Antunes, chief economist at the Conference Board of Canada, said the increase caught many observers off-guard.