Gas prices cause inflation rate to eight-year high

Statistics Canada says inflation has hit its highest point in eight years, as soaring gasoline prices have left consumers reaching deep into their pockets to cover their transportation costs.

For the 12-month period ending in May, consumer prices were up 3.7 per cent.

StatsCan says this bump in inflation is due mostly to rising gasoline prices, but Canadians are also paying more for food and shelter.

Year-over-year, Canadians were paying 3.9 per cent more in May for their food and 1.8 per cent more for their shelter. But they were paying 9.1 per cent more for transportation as compared to a year ago.

The price at the pumps was the major contributing factor to rising transportation costs, with StatsCan reporting Wednesday that gasoline prices were up a whopping 29.5 per cent in May compared to what they were 12 months before.

According to StatsCan, gasoline prices have not seen such an abrupt year-over-year increase since the aftermath of Hurricane Katrina in September 2005.

The impact of the gas spike is enough that the annual inflation rate would stand at only 2.4 per cent if gas prices were excluded from its calculation, says StatsCan.

On a provincial basis, StatsCan said Nova Scotia had the highest jump in prices (4.6 per cent), while Alberta had the lowest (2.8 per cent).

With the increases seen in May, inflation has now been hovering above 3 per cent for three consecutive months. The Bank of Canada previously warned that inflation would reach this range during the spring.

Canada's central bank could raise interest rates next month, though analysts say it is an unlikely possibility.

In an analysis of the latest inflation figures, Paul Ashworth of Capital Economics says that "despite the pick up in inflation, the Bank of Canada will leave interest rates on hold for the foreseeable future."

With files from The Canadian Press

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