Statistics Canada says inflation jumped 7.7 per cent in May, marking the biggest year-over-year increase since January 1983 and putting pressure on the Bank of Canada to rapidly hike rates.
The increase in the Consumer Price Index (CPI) was driven by soaring gas prices, which rose 12 per cent compared to April. Statistics Canada also said that a 5.2 per cent annual price increase for services, which includes hotels and restaurants, contributed to the upward pressure.
All eight major components of the index saw increases in the month of May, with food and shelter prices rising at the same rate as in April, up 8.8 per cent and 7.4 per cent respectively. The remaining components, with the exception of alcohol, tobacco and cannabis products, saw prices increase at a faster rate than last month.
"Price pressures continued to be broad-based, pinching the pocketbooks of Canadians and in some cases affecting their ability to meet day-to-day expenses," Statistics Canada said in a release.
Economists had widely predicted inflation to be higher than April, when inflation hit 6.8 per cent, but May's rapid acceleration still surpassed expectations. Analyst had predicted an increase of 7.4 per cent.
Canadians paid 48 per cent more for gas in May compared to last year, while energy prices overall jumped 34.8 per cent.
Grocery prices remained high in May, matching April's increase of 9.7 per cent, which was the largest increase in the category since Sept. 1981. The price of fresh vegetables was up 10.3 per cent, meat was up 9 per cent, and edible fats and oils surged 30 per cent, the largest increase on record.
Prices for traveller accommodations have also been on the rise, increasing 40.2 per cent overall from the year before, with the biggest increases seen in Ontario (56.8 per cent), British Columbia (43.2 per cent) and Nova Scotia (41.8 per cent). Restaurant prices also jumped 6.8 per cent in May.
'Bank of Canada will hike by 75 basis points'
Inflation has been on a tear in Canada, putting pressure on the Bank of Canada to raise rates rapidly, cool demand, and bring inflation back to its target range of between one and three per cent.
Calls to follow the Federal Reserve's footsteps and hike its benchmark interest rate by 75 basis points when it issues its next decision in July have grown in light of the recent inflation data.
TD Economics managing director Leslie Preston wrote in a research note on Wednesday that "we are not expecting much of a reprieve going forward" when it comes to inflation.
"Inflation is expected to remain elevated through 2022," Preston said.
"All of this reinforces the view that the Bank of Canada will hike by 75 basis points on July 13, following in the Fed's footsteps."
BMO Capital Markets chief economist Douglas Porter said in a research note on Wednesday that given gas prices have continued to rise this month, the inflation print could hit the 8 per cent threshold for June.
"The key takeaway is that the Bank of Canada still has lots of work to do, with a 75 basis point hike in July almost fully baked in, and we suspect another 100 basis point of tightening to follow that through the remainder of the year," Porter said.
"Just like the consensus on inflation, the risks to that view seem tilted to the high side."
The Bank of Canada raised its benchmark rate by 50 basis points on June 1, the second consecutive outsized hike that brought the policy interest rate to 1.5 per cent.
With files from Reuters
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.