OTTAWA — High oil and gasoline prices are anticipated to elevate inflation rates, with Statistics Canada set to release the consumer price index for May on Monday. Economists are particularly interested in understanding whether the rise in gas prices is influencing inflation across other sectors of the economy.

Andrew Hencic, a senior economist at TD Bank, noted that gasoline prices increased in May, which would contribute to an uptick in the inflation rate for that month. However, he pointed out that oil prices have recently declined following a memorandum of understanding between the U.S. and Iran to end hostilities and reopen the Strait of Hormuz to tanker traffic. The specifics of the final agreement regarding Iran's nuclear program are still under negotiation.

Hencic stressed that while gasoline prices are a visible concern for consumers, they are not the only factor to consider. He emphasized that examining the broader spectrum of price movements is crucial. “If those core measures continue to be well-behaved, then we don’t see a significant pickup in inflation across a broader set of goods and services,” he stated.

Statistics Canada reported an annual inflation rate of 2.8% in April, up from 2.4% in March, driven largely by a 19.2% year-over-year increase in energy prices. When excluding gas prices, the consumer price index showed an increase of 2% in April. Economists predict that the annual inflation rate will rise to 3% in May, as indicated by LSEG Data & Analytics.

The Bank of Canada, which aims for a 2% inflation target, has suggested that there hasn’t been significant evidence of a widespread impact of higher energy prices on other goods and services thus far. Earlier this month, the central bank decided to keep its policy interest rate at 2.25%, indicating a cautious approach while monitoring the effects of the ongoing conflict in the Middle East. The Bank has expressed its commitment to preventing higher energy prices from leading to sustained inflation.

RBC economist Abbey Xu highlighted that the central bank’s preferred measures of core inflation hover around 2%. She explained that the primary concern is whether rising energy costs will begin to diffuse into other categories within the consumer basket. Xu remains optimistic, noting that they currently do not foresee significant pass-through effects from energy prices to broader inflationary measures.

The inflation report is particularly timely as economists expect signs of economic recovery in the second quarter following a weak start to the year, during which the Canadian economy contracted by 0.1% on an annualized basis in the first quarter. The Bank of Canada’s next interest rate decision is scheduled for July 15, where it will also publish its latest monetary policy report along with economic forecasts.

This forthcoming report will be crucial for analysts and policymakers alike, particularly in understanding how consumers are responding to rising energy costs and whether these trends will influence broader economic conditions. As the situation develops, stakeholders will continue to monitor inflation dynamics closely to assess any significant impacts on the Canadian economy.