Canada's annual inflation rate reached 3.2 percent in May, marking its highest level in 29 months. This rate represented the first time in nearly two-and-a-half years that Canada's headline inflation moved outside the Bank of Canada's target range of one percent to three percent.

Statistics Canada released the inflation data on Monday. The monthly inflation rate increased by one percent in May, which was the highest gain in 15 months. Overall consumer prices increased by 2.2 percent on an annual basis.

Petrol prices contributed to the increase, rising by 33.2 percent on an annual basis in May. This gain marked the highest increase in petrol prices since Russia's invasion of Ukraine. Transportation costs increased by 9 percent compared to the prior month.

Food prices also increased by 3.8 percent in May. Within this category, fresh fruit costs rose by 5.3 percent and vegetable prices increased by 9 percent. Shelter costs rose by 1.7 percent in May, following a 1.8 percent rise in April, while mortgage costs decreased by 0.2 percent in May.

The Bank of Canada stated earlier in May that it was seeing limited evidence of higher energy prices fueling broad-based inflation. Doug Porter, chief economist at BMO Capital Markets, said, "It's never good news to see the overall inflation rate track above three percent, even if it is for one month only."

Michael Davenport, a senior Canada economist at Oxford Economics, said, "The US-Iran agreement to reopen the Strait of Hormuz has caused oil prices to fall sharply in June, so May will likely represent the near-term peak for headline inflation." He added, "There's still plenty of uncertainty about the durability of the ceasefire, and the risk of a resurgence in oil prices remains elevated." The Strait of Hormuz is a waterway through which 20 percent of the global oil supply is shipped.