The State of Inflation and What It Means for Your Wallet

Feeling the pinch at checkout? You're not alone. The rising cost of living in Canada continues to cast a shadow over household budgets. From groceries to housing, prices are still climbing—though not as steeply as we’ve seen in the past. Here’s a look at the latest inflation numbers and what they mean for your wallet. 

What Is Inflation?

Simply put, inflation is when prices go up. Statistics Canada reports on inflation each month. Headline inflation is a measure of overall price growth. It’s quoted most often in the media and is the measure the Bank of Canada looks at when setting interest rates. But economists also keep an eye on core inflation. That’s because it’s considered a better indicator of what’s happening in the underlying economy as it excludes things that can fluctuate quite a bit in price from month to month.

What Did the May Inflation Report Say?

Yesterday, Statistics Canada reported that headline inflation rose 1.7% year over year in May. That’s unchanged from April and slightly below the Bank of Canada’s 2% target. At the same time, several commonly used measures of core inflation showed underlying price growth slowing to between 2.5% and 3% in May, which is toward the upper end of the Bank of Canada’s 1% to 3% target range.

Headline inflation was affected by a number of factors in May, including groceries, gasoline and housing. As our economists detailed in a recent report, shelter inflation has been slowing on a year-over-year basis. That means prices are still going up, but not as fast as they were before. Meanwhile gasoline prices fell overnight when the consumer carbon tax was eliminated across most of the country on April 1, and they remain well below where they were in May of last year. And after rising steadily since January 2025, food inflation finally slowed last month.

What Does It All Mean for Canadians?

The May inflation report tells us that Canadians’ cost of living continues to rise, but not as quickly as it did right after the COVID-19 pandemic. For comparison, headline inflation hit a 40-year high of 8.1% in June of 2022, well above the 1.7% reported in May of this year. Looking forward, our economists expect retaliatory tariffs This link will open in a new window. on imports from the United States to keep pushing food and other prices higher. However, because the housing market has cooled and prices at the pump are down, they expect overall inflation to stay near the 2% target for the foreseeable future. But Canadians will still feel the pinch of higher prices going forward as the sharp increases since the pandemic aren’t likely to be reversed.

The Bottom Line

While headline inflation is expected to remain near target going forward, uncertainty persists. With trade tensions escalating and policy shifts unfolding, the next few months could be pivotal in shaping the country’s economic trajectory.