Inflation dips to 1.5% as food prices increase by smallest amount since 2014

Canada's inflation rate dropped to 1.5 per cent in May as food prices posted their smallest annual increase in more than two years.

Statistics Canada reported Friday that the consumer price index dipped to 1.5 per cent in May, down from 1.7 per cent the month before. Economists had been expecting a rate of about 1.6 per cent.

All eight components tracked were in positive territory, but gasoline and food prices dragged the total down. Gasoline prices were down 7.1 per cent in the year up to May, while food prices increased by 1.8 per cent. That's the smallest increase seen since March of 2014.

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Shoppers can thank the resurgent loonie for taking away some of the bite of runaway prices at the grocery store.

"The loonie's rebound has helped dampen food inflation in particular, as grocery prices rose a tame 1.4 per cent in May versus a peak rise of 4.6 per cent in January," BMO economist Doug Porter said. "Just as an example of how quick the turn has been, fresh veggies have gone from increases of more than 18 per cent early this year to less than two per cent now."

Since much of what Canadians buy at the grocery store is imported, a stronger loonie keeps price hikes at bay in the produce aisle.

The downward drag from gasoline, fuel oil and natural gas was countered by higher prices for purchases such as electricity, passenger vehicles and home insurance.

The core inflation rate, which excludes some volatile items such as gasoline prices, rose to 2.1 per cent last month after a 2.2 per cent reading in April.

Inflation was lower in eight provinces in May compared to the previous month. Only Manitoba saw a higher rate and Alberta showed no change.