By Paul Vieira 

OTTAWA -- Canada's annual inflation rate climbed markedly in May, driven by steep price increases for fresh vegetables and passenger vehicles.

A gauge of underlying prices, which tries to limit the influence of volatile items such as food and gasoline, accelerated at a pace last recorded over seven years ago.

Canada's consumer-price index increased 2.4% on a year-over-year basis in May, Statistics Canada said Wednesday, compared with a 2% rise in the previous month. Market expectations were for a 2.2% rise in May, according to economists at Royal Bank of Canada.

On a month-over-month basis, inflation was up 0.4%.

The Bank of Canada's preferred measures for underlying inflation rose from the previous month, with the average core CPI rate for May coming in at 2.07%, an increase from 1.9% in the previous month and the biggest rise since February 2012.

Canada's central bank sets rate policy to achieve and maintain 2% inflation.

While the inflation data for May surprised on the high side, it is unlikely to affect Bank of Canada rate policy in the near term. The central bank hit the pause button earlier this year on any further rate rises, concerned about escalating global trade tensions and a slowdown in investment in the energy sector.

"Stable to slightly higher inflation readings and generally improving domestic data allow the BoC to remain patient and monitor the impact of external developments," said Josh Nye, economist at Royal Bank of Canada.

The Bank of Canada kept its main interest rate unchanged in May at 1.75%, and in its decision said it expected headline inflation to remain around 2% in the coming months. Nearly all Canada market watchers anticipate the central bank to be on hold for the remainder of 2019.

Wednesday's CPI report indicated all eight components tracked by Statistics Canada rose in May, with six of them growing at a faster rate than the previous month.

Prices for food purchased at grocery stores climbed 4% in May from a year ago, led by a 2.9% rise in the cost of meat and a 16.7% jump in the cost for fresh vegetables. The data agency said the steep increase in vegetables -- the biggest in over three years -- was attributed to inclement weather in certain growing regions, which in turn limited the supply available.

The price for passenger vehicles rose 4.2% from a year ago. The data agency said the increase reflected manufacturer rebates offered in May of last year. Also, mortgage-interest costs climbed 8.2% in May from a year ago.

Offsetting those increases was a 3.7% drop in gasoline prices. Excluding gasoline, Canadian annual CPI rose 2.7% in May, or the fastest pace in nearly 11 years for this gauge.

On a seasonally adjusted basis, Canada's monthly CPI increased 0.3% in May, matching the previous month's rise.

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

June 19, 2019 09:21 ET (13:21 GMT)