Annual inflation rose to 7.7 percent last month, up from 6.8 percent in April, Statistics Canada reported Wednesday in Ottawa. That’s the highest since January 1983 and well above economist expectations for a 7.3 percent gain. The inflation gauge rose 1.4 percent from a month earlier with gasoline, hotel rates and cars among the largest contributors to the gains in May.

The average of core measures – often seen as a better indicator of underlying price pressures – rose to 4.73 percent, a record in data back to 1990.

Benchmark Canadian two-year yields dropped as low as 3.269 percent amid a global rally in government bonds. The Canadian dollar pared losses to trade at C$1.2968 per U.S. dollar as of 8:56 a.m.

Wednesday’s report illustrates the urgency for Governor Tiff Macklem to quickly withdraw stimulus from an overheating economy amid concern price pressures are becoming entrenched in the economy.

Markets are now fully pricing in a 75-basis-point rate hike by the Bank of Canada next month, which would bring its policy rate to 2.25 percent. That rate is expected to reach as high as 3.5 percent by the end of this year. Prime lending rates offered by commercial banks are typically a little more than 2 percentage points above the policy rate.

“There was no rest for those of us growing weary of escalating inflationary pressures in May,” Andrew Grantham, an economist at Canadian Imperial Bank of Commerce, said in a report to investors. “The higher than expected inflation figure will have markets pricing an even greater probability of a 75bp hike in July.”

Prime Minister Justin Trudeau’s government has also been under pressure from opposition parties and economists to do more to stem inflationary pressures and help households offset the cost of living, though his administration has been wary of taking any new measures.

Like other countries, Canadian households are being hit by record gasoline prices, paired with surging food costs.

After a small reprieve in April, gasoline prices shot up again in May, rising 12 percent during the month and gaining 48 percent from a year earlier. Food costs rose a smaller 0.8 percent last month, but are up 8.8 percent from a year earlier.

The 7.7 percent annual reading may not even represent the peak, given that gasoline prices have picked up further in June.

There are also more signs that imported inflation is spilling over into domestic price gains, with the cost of services rising 5.2 percent from a year earlier, the fastest pace since 1991.

Excluding food and energy costs, inflation was also up 5.2 percent – a three-decade high.

The cost of living is increasing at twice average wage gains in the country, adding a major headwind to the economy.

Wednesday’s report includes updated basket weights, as well as the inclusion of used car prices for the first time. The statistics agency said the changes didn’t have an impact on the consumer price index for May.

The inflation surge has made the Bank of Canada a target of criticism, with some politicians accusing Macklem of moving too slowly.

The central bank has consistently failed to anticipate the growing inflationary pressures, putting it well behind the curve on interest rates. In its last quarterly forecast in April, the central bank predicted inflation would average 5.7 percent in the first half of 2022.

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