June 23, 2026
SUMMARY
Ontario’s inflation rate rose to 2.6% in May, mainly due to higher gasoline and energy prices. However, core inflation, which excludes food and energy, fell to 0.6%, suggesting that underlying inflation pressures continue to ease. Outside of energy, price growth remained relatively moderate, supporting expectations that interest rates will stay unchanged through most, if not all, of 2026.
MAY INFLATION UPDATE
Ontario’s overall inflation rate increased to 2.6% in May, continuing the rise seen in April. While headline inflation moved higher, core inflation, which excludes food and energy prices, declined to 0.6%, continuing the trend from last month. This suggests that underlying inflation pressures are easing despite the sharp increase in energy costs.
The rise in inflation was largely driven by higher oil prices. Global supply disruptions linked to tensions in the Middle East pushed fuel prices significantly higher during last few months.
Major cities across Ontario saw a similar trend. Inflation was 2.1% in Toronto, 3.1% in Ottawa, and 3.5% in Thunder Bay. While inflation remained elevated in Thunder Bay, it was lower than the previous month, unlike most other regions in the province.
ENERGY PRICES LEAD THE INCREASE
Energy prices rose by 24.7% in May, accelerating sharply from the previous month. Gasoline prices increased by 41% since February 2026, before the onset of the U.S.-Iran conflict, and were 37.4% higher than a year ago.
With recent signs that tensions in the Middle East may be easing, energy prices could moderate in the coming months. If this trend continues, some of the recent increase in energy inflation may reverse in future reports.
Outside of energy prices, inflation pressures remained fairly moderate in May.
OTHER COMPONENTS
Higher fuel prices also pushed transportation costs higher. Transportation inflation increased to 9.3%, up from 8.1% in April.
Food inflation, which had been declining for five straight months, increased to 4.3% in May from 3.8% in April. According to Statistics Canada, the increase was mainly due to reduced supply and higher transportation costs. Tomato prices rose by 45.2% because of supply shortages in Mexico, caused by poor weather conditions and reduced planting acreage following the implementation of U.S. tariffs.
Shelter costs remained stable overall, rising by just 0.2%. Rent inflation increased slightly to 2.4% in May from 2.2% in April.
Prices increased across most sectors compared with last month, while Clothing, Health, and Education were the only categories to record declines.
OUTLOOK FOR INTEREST RATES
The Bank of Canada has kept its overnight interest rate unchanged at 2.25% for the past five meetings. The May inflation report suggests that headline inflation remains heavily influenced by energy prices, while underlying inflation trends continue to move broadly in line with the Bank of Canada’s inflation target.
As a result, interest rates are expected to remain stable through most, if not all, of 2026.
Most of Canada’s Big 4 banks currently expect rates to remain unchanged this year and forecast increases of 25 to 50 basis points beginning in early 2027.
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FOR MORE INFORMATION, CONTACT:
Gargi Bharti
Economic and Research Project Lead
Ontario Construction Secretariat (OCS)
180 Attwell Drive, Suite 360, Toronto, ON M9W 6A9
P 416.620.5210
gbharti@iciconstruction.com
