Annual inflation accelerated in Canada last month on the back of a spike at the gas pump, topping the Bank of Canada's target.
Friday's reading of 2.3 per cent by Statistics Canada raised questions about the central bank's outlook and the sent the Canadian dollar higher, closing in on the 93-cent (U.S.) level. The currency actually touched 93 cents at one point before pulling back slightly.
On a month-over-month basis, consumer prices rose 0.5 per cent in May, the federal agency said.
Energy prices surged 8.4 per cent from a year earlier as the cost of gasoline climbed 6.3 per cent, natural gas 21.3 per cent and electricity 7 per cent.
Still, the increases were broad-based, with a "hot" jump of 0.8 per cent for alcohol and tobacco, noted National Bank of Canada.
That 2.3-per-cent measure, up from 2 per cent in April and the fastest pace in more than two years, was faster than economists had expected.
Even so-called core prices, which strip out volatile items and help guide the Bank of Canada, rose 0.5 per cent in May from April, bringing the annual pace for that measure to jump to 1.7 per cent.
This, of course, will raise eyebrows because the Bank of Canada has a "neutral" stance, meaning there's no signal of where interest rates will head, or when. Indeed, Governor Stephen Poloz has left the door open to a rate cut, which has helped keep a lid on the Canadian currency.
The core rate, for example, is above the central bank's latest forecast, and Mr. Poloz says he believes faster inflation is temporary only.
The Bank of Canada's target for annual inflation is 2 per cent.
"The low inflation ship has sailed," said Bank of Montreal chief economist Douglas Porter.
"While both core and headline inflation have been pumped up by the early-year slide in the Canadian dollar, there is more than just food, fuel and the currency at play," Mr. Porter added.
"Given that core inflation remains below target, the bank will feel no urgency to respond to the upswing - after a long spell below 2 per cent, policy makers will readily tolerate a spell above 2 per cent for headline inflation. However, clearly the tone of the bank's rhetoric will change, and change significantly in next month's [monetary policy report]. Concerns about too-low inflation? So last quarter."
Other observers agree that Mr. Poloz will still be in no rush to boost the Bank of Canada's benchmark rate from its current 1 per cent.
"Core inflation is now running a full half-point above the bank's estimate for the quarter, although we still believe any move in policy is a year off," said Peter Buchanan of CIBC World Markets.
This came as a separate reading by the agency showed Canadian shoppers out in force in April, as retail sales climbed 1.1 per cent, driven by cars and car parts.
Still, the gains across Canada were exceptionally broad-based, with sales up in 10 of 11 sectors measured, or 98 per cent.
"The advance in retail volumes is welcome news, and suggest Canadian consumers are bouncing back after a tepid first quarter," said senior economist Krishen Rangasamy of National Bank.
"The overall picture for April is good, with a trifecta of volume gains in retailing, wholesaling and manufacturing, enough in our view to prop up GDP by around 0.2 per cent in the month."