(Bloomberg) -- The spring surge in Toronto house prices accelerated again in May, providing another sign of persistent inflation in parts of the Canadian economy before a central bank rate decision next week.

The benchmark price of a home in Canada’s largest city increased 3.2% last month to C$1.14 million ($848,000) on a seasonally adjusted basis, the third straight monthly increase and the biggest since the market peaked in February 2022, according to data released Friday from the Toronto Regional Real Estate Board.

Home prices in Toronto and across Canada tumbled from record highs starting early last year as the central bank began aggressive interest rate hikes to combat inflation. Immediately after the Bank of Canada paused that campaign this year, prices started to bounce back as buyers who had delayed purchases leaped back into the market, only to be confronted with a dearth of homes for sale. In Toronto, the benchmark price is already up 6.8% since February.

“The market is still pretty clearly strengthening since the Bank of Canada said it was going to pause,” said Robert Kavcic, an economist with Bank of Montreal, which today changed its forecast to call for the central bank to raise rates again next month. “When you have the most interest rate-sensitive sector of the economy starting to gather momentum again, it kind of calls into question whether policy is restrictive enough.”

Though there is some indication the surge in prices is starting to lure sellers back — new listings rose 10.1% in May from the month before — the data show that even after these homes were put up for sale, demand outstripped supply so much that the market only grew tighter. 

One measure of how tight the market is, months of inventory, or how long it would take the market to work through its active listings at the current rate of sales, fell to only 1.3 months. Another measure, the sales-to-new-listings ratio, remained above 70%, indicating more price gains to come, the real estate board said.

“The demand for ownership housing has picked up markedly in recent months,” Jason Mercer, the Toronto real estate board’s chief market analyst, said in a release accompanying the report. “The supply of listings hasn’t kept up with sales, so we have seen upward pressure on selling prices during the spring.”

And similar trends are appearing elsewhere in Canada, including Vancouver, long the country’s priciest housing market. Benchmark prices rose 1.3% in the British Columbia city in May from the month before, bringing the gains so far this year to more than 6%, according to a separate report Friday from the Real Estate Board of Greater Vancouver. 

In Vancouver, the surge in prices is also driven by a shortage of active listings and measures of market tightness that point to more appreciation to come, the report showed.

This house price surge in Canada’s largest cities, which is starting to be seen across the country, is the latest in a string of data showing the economy generally shrugging off higher interest rates. And it’s contributing to persistent inflation, which at around 4% is still double the central bank’s target. 

That has led to predictions the Bank of Canada will resume its interest rate hikes at its meeting Wednesday. Not only are some leading economists making that projection, the financial markets now assign about a 32% chance of it happening, according to Bloomberg calculations on trading data. For the bank’s following meeting in July, the markets now see the odds of another rate hike as almost a coin flip, the data show.

“Demand for homes, that’s definitely turned sooner than the Bank of Canada was expecting,” said Veronica Clark, an economist with Citigroup Inc. who has called for Bank of Canada to raise interest rates next week. “You really have to raise rates, and higher rates hopefully means people don’t want to buy as many homes.”

(Updates with economist comments in fourth paragraph, Vancouver data starting in eighth paragraph)

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