Canada's consumer price index rose in May, but it may mark the peak and keep the central bank on hold according to UBS Global Research, even as food-price inflation "is something to watch."
The bank wrote in a note sent on Tuesday that prices may have peaked because June gasoline prices have fallen roughly 8% versus May.
"We expect this could be the peak in headline inflation though, and therefore we continue to expect no change in policy" from the Bank of Canada this year, said UBS.
The headline index rose 0.4 percentage point to 3.2% year over year and core CPI added 0.1 point to 1.6% annually, according to data released on Monday by Statistics Canada.
Energy remained the key driver, rising 3.3% monthly versus 5.7% in April, and up 22% annually. Food prices also contributed to the upside surprise, rising 0.7% in May, with annual food inflation ticking up from 3.5% to 3.8%. This interrupts a run of steady declines in food inflation since January.
"Food price inflation is something to watch, given BoC concerns over potential spillover from rising transportation costs into food costs," wrote the UBS economists in the note.