Canada CPI Preview: Inflation expected to tick higher in May, pressuring BoC outlook
- Canadian inflation is expected to rise by 2.9% YoY in May.
- The core CPI is still seen well above the BoC’s 2% target.
- The Canadian Dollar has been steadily depreciating against the US Dollar.
The publication of Canada’s May Consumer Price Index (CPI) figures on Monday will be the focus of attention. Indeed, Statistics Canada data will provide markets with an update on price pressures following its June 10 meeting, where policymakers kept the interest rate steady at 2.25%, matching the broad consensus.
Economists expect the headline CPI to rise by 2.9% in the year to May, still above the Bank of Canada’s (BoC) target and up from April’s 2.8% annual increase. On a monthly basis, prices are expected to rise by 0.7%. The bank will also closely monitor its core measure (which strips food and energy costs), which is expected to rise by 2.2%, up from 2.1% YoY in the previous month.
Following the US-Iran deal, the geopolitical premium on crude Oil prices should dissipate, reducing inflationary pressure from this source and leaving US tariffs as the sole potential driver of increases in consumer prices.
What can we expect from Canada’s inflation rate?
Inflation gained some momentum in April, and market participants appear to bet on further continuation of this trend in May.
At its latest gathering, the BoC left its policy rate unchanged at 2.25%. Governor Tiff Macklem repeatedly emphasised that any future policy move would depend on evolving economic conditions rather than on a predetermined timetable. He also highlighted that core inflation has edged lower and reiterated that weakness in the Canadian economy continues to exert downward pressure on prices.
So far, market participants expect just over 22 basis points of tightening by year-end.
Furthermore, the bank’s preferred gauges, CPI-Common, Trimmed Mean, and Median, also moderated, but at 2.5%, 2.0%, and 2.1%, respectively, they continued to run above the bank’s goal.
When is the Canada CPI data due, and how could it affect USD/CAD?
Markets will fully focus on Monday at 12:30 GMT, when Statistics Canada publishes May’s inflation figures. If inflation continues to pick up momentum, the likelihood of further rate hikes could increase, giving some air to the Canadian Dollar (CAD).
Pablo Piovano, Senior Analyst at FXStreet, notes that USD/CAD has been on a steady uptrend since the beginning of May, almost entirely tracking developments from the Middle East conflicts and the US Dollar’s (USD) price action.
Piovano points out that USD/CAD is trading at levels last seen in April 2025, well north of 1.4100. The continuation of this move could challenge the April 2025 peak at 1.4414 (April 1).
On the flip side, he highlights initial support at the vital 200-day SMA around 1.3820, closely followed by the provisional 55-day and 100-day SMAs at 1.3794 and 1.3751, respectively. South from here emerges the May base at 1.3549 (May 1), seconded by the March floor at 1.3525 (March 9) and the February valley at 1.3504 (February 11).
“Momentum could prompt some technical correction,” he adds, noting that the Relative Strength Index (RSI) is navigating comfortably in overbought levels past 86, while the Average Directional Index (ADX) above 44 suggests the underlying trend remains robust.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
Economic Indicator
Consumer Price Index (YoY)
The Consumer Price Index (CPI), released by Statistics Canada on a monthly basis, represents changes in prices for Canadian consumers by comparing the cost of a fixed basket of goods and services. The YoY reading compares prices in the reference month to the same month a year earlier. Generally, a high reading is seen as bullish for the Canadian Dollar (CAD), while a low reading is seen as bearish.
Read more.Last release: Tue May 19, 2026 12:30
Frequency: Monthly
Actual: 2.8%
Consensus: 3.1%
Previous: 2.4%
Source: Statistics Canada
Author
FXStreet Team
FXStreet
Composed of a group of economic journalists and FX experts, the FXStreet content team produces and oversees all content published on FXStreet. It provides a purely journalistic approach to the Forex market.
