Canada’s latest inflation report delivered encouraging news for mortgage borrowers.

Headline inflation rose 2.8% in April, but the more important number was core inflation, which fell to:

$2.05\%$

That’s very close to the Bank of Canada’s 2% target and the lowest level since 2021.

Key Takeaways

• Core inflation cooled significantly in April
• Gas prices were the main reason headline inflation stayed elevated
• Mortgage interest costs fell for the first time since 2022
• Rent growth continues slowing
• Markets still expect possible rate hikes later this year
• Variable-rate borrowers may get some relief

What’s Driving Inflation Right Now?

Most of April’s inflation increase came from gasoline prices, which jumped sharply year-over-year.

But outside of energy, inflation was much softer:

• CPI excluding food, energy, and indirect taxes was 1.5%
• Rent inflation slowed to its weakest pace in four years
• Mortgage interest costs declined year-over-year

These are signs that higher interest rates are continuing to cool the economy.

Why Markets Still Expect Rate Hikes

Even with softer inflation data, markets are still pricing in possible Bank of Canada hikes later this year.

One reason is inflation breadth — the share of prices still rising above 3%. That figure increased to:

$40.4\%$

This suggests inflation pressures haven’t fully disappeared across the economy.

Still, many economists believe the Bank of Canada will likely hold rates steady unless inflation starts rising again.

What This Means for Mortgage Borrowers

Variable-Rate Mortgages

This report is positive for variable-rate borrowers.

If core inflation stays near 2%, pressure for additional rate hikes may ease, giving homeowners more stability.

Fixed Mortgage Rates

Fixed rates remain tied to bond yields, especially in the U.S.

That means fixed mortgage pricing could still fluctuate even as Canadian inflation improves.

The Bottom Line

Canada’s inflation picture is improving beneath the surface.

Core inflation is close to target, rent growth is slowing, and mortgage interest costs are finally easing.

While markets still see some risk of future hikes, this report gives borrowers cautious optimism that rate pressures may be starting to stabilize.

FAQ Section

What is core inflation?

Core inflation removes volatile items like food and energy to show underlying inflation trends more clearly.

Will the Bank of Canada raise rates again?

Markets still expect possible hikes, but many economists believe rates could remain unchanged if inflation continues cooling.

Is this good news for mortgage borrowers?

Yes. Softer inflation reduces pressure for future rate hikes and may help stabilize borrowing costs.

Cedric Pelletier – Written by the Marketing team at MLN