Canada’s latest inflation report is out; at first glance, it looks like good news. April’s Consumer Price Index (CPI) came in at 1.7% – lower than many expected and under the Bank of Canada’s 2% target. Sounds like a green light for a rate cut, right? Not so fast. In this episode, Marcus & Justin go beyond the headlines to reveal what matters for your mortgage.
Episode Highlights
CPI vs. Core Inflation: What Really Matters
Yes, the CPI dropped to 1.7%, but the devil is in the details.
The headline CPI includes everything in the “basket of goods” — from food and gas to travel and clothing. But the Bank of Canada doesn’t set interest rates based on the headline number alone. Instead, it focuses on core inflation, specifically CPI-Trim and CPI-Median, which strip out the most volatile items (like energy and food) to get a more stable view of price growth.
Here’s the issue
- Energy prices fell by 12.7% in April, largely because of changes in carbon pricing.
- That dramatic drop dragged the overall CPI lower.
- But core inflation remained stubbornly high, with CPI-Trim at 3.1% and CPI-Median at 3.2% — both well above the 2% target.
So while the headline number looks great, the Bank of Canada’s preferred inflation gauges tell a different story.
Why This Matters for Interest Rates
Just a few weeks ago, most economists believed a rate cut on June 4th was all but certain. The economic data pointed to a struggling economy:
- Over 30,000 jobs were lost in April
- Unemployment rising to 6.9%
- Consumer confidence plummeting
In normal times, this would be a perfect setup for a rate cut. But persistent core inflation is throwing a wrench into those plans.
As a result, the odds of a June rate cut have dropped from 70% to just 40%.
What’s Driving Core Inflation?
One major culprit: travel and groceries.
- Travel and tourism prices are up, as Canadians opt to vacation locally.
- Grocery prices continue to climb, with food inflation contributing 3.8% to the April CPI.
Some of this may be due to tariffs, but we’ve seen grocery prices rising long before tariffs were even introduced. That’s likely a function of Canada’s highly concentrated grocery market, where companies like Loblaws, Sobeys, and Metro dominate — and profit.
Will Inflation Become Systemic?
Here’s the key question the Bank of Canada is grappling with:
Is this inflation temporary, or is it becoming systemic?
The answer depends largely on wage growth. Systemic inflation usually follows rising wages, as companies pass those costs on to consumers. But with unemployment rising, it’s harder to justify wage increases, which could prevent inflation from becoming entrenched.
That’s the sliver of hope for a rate cut — possibly not in June, but later in 2025.
Cannect’s Take: What Should Homeowners Do?
We’ve said it before, and we’ll say it again:
Variable-rate mortgages still make a lot of sense in this environment.
Why?
- The Bank of Canada is likely to cut rates multiple times in 2025 — possibly up to three times.
- Fixed rates are still pricing in future risk, and could leave you locked in higher than necessary.
- Variable rates offer more flexibility, especially when paired with smart prepayment strategies.
And with Canada’s economy struggling, the case for lower rates is only growing stronger.
The April inflation numbers are a mixed bag. While the headline CPI offers some encouragement, core inflation remains too high for the Bank of Canada to confidently cut rates — at least not yet.
But make no mistake: the pressure is building. Rising unemployment, weak consumer demand, and a cooling economy will all eventually tip the scales in favor of lower interest rates.
At Cannect, we’re watching every move — so you don’t have to.
Need help to choose between a fixed or variable mortgage? Want to refinance while rates are still high? Or just want to talk strategy?
