🎯Canada’s Inflation Dips Below Target—And Rates Are Reacting🇨🇦

The latest inflation numbers are in, and they’ve given Canadians a reason to feel cautiously optimistic.

Canada has busted through its 2% inflation target, coming in at 1.7% for April 2025. But is it all good news?

In April 2025, Canada’s annual inflation rate dropped to 1.7%, down from 2.3% in March. That’s below the Bank of Canada’s 2% target—a benchmark economists and policymakers have been watching closely.

This decline was mainly driven by lower energy prices, which are helping to ease the financial pressure for households across the country. But while this headline number sounds encouraging, the deeper data tells a more complex story.

⚠️ Why This Drop Isn’t All Good News

Despite the promising headline figure, core inflation—which strips out the more volatile components like food and energy—remains at 2.5%. Even more concerning is the CPI Trimmed-Mean, which rose to 3.1%, above the market expectation of 2.9%.

This metric is critical because the Bank of Canada uses it to help guide interest rate decisions. It excludes the top and bottom 20% of price changes in the economy, offering a clearer picture of “sticky” inflation. With this number still running hot, it may give the Bank pause before making any aggressive rate cuts.

In addition, month-over-month core inflation came in at 0.5%, more than double the market consensus of 0.2%. This means prices are still climbing at a pace that could keep borrowing costs elevated longer than homeowners and buyers would like.

💸 Bond Markets React

Financial markets wasted no time reacting to the mixed inflation news. The 5-year Canadian bond yield jumped nearly 10 basis points this week, a move that is already starting to impact fixed mortgage rates. If yields continue to climb, lenders may adjust rates upward—even if inflation seems to be cooling.

🇨🇦 Canada vs. 🇺🇸 U.S.: A Tale of Two Credit Ratings

In other financial news, Moody’s downgraded the U.S. credit rating from Aaa (negative) to Aa1 (stable), citing concerns about rising federal debt and declining tax revenues. This downgrade raises questions about long-term financial stability south of the border.

By contrast, Canada’s credit rating remains Aaa with a stable outlook, reinforcing global confidence in the country’s fiscal health. While this doesn’t directly impact mortgage rates, it’s a reassuring sign for investors and borrowers alike.

🛍 Klarna Losses & Consumer Confidence

Meanwhile, fintech lender Klarna reported a sharp rise in consumer credit losses, particularly in the U.S., where more borrowers are falling behind on “Buy Now, Pay Later” loans. Their net loss nearly doubled in Q1 to $99 million, driven by a 17% increase in credit defaults.

This trend highlights a growing unease among consumers—and could be a warning sign of financial stress spreading more broadly through the economy.

🏡 What Does This Mean for Your Mortgage?

While the drop in inflation is a step in the right direction, the Bank of Canada still faces conflicting signals. Core inflation remains stubborn, and bond yields are rising. That said, there’s growing speculation that a rate cut could come as early as June, especially after recent disappointing job numbers.

If you’re a homeowner or buyer wondering how to navigate this shifting landscape, now is a great time to review your mortgage strategy. Whether you're considering locking in a rate, refinancing to improve cash flow, or preparing for a future purchase, staying ahead of market trends can make a significant difference.

📩 Send me a message or book a time here to chat.

—Melissa 💙

Melissa Kuczepa, AMPC, Mortgage Agent Level 2

(905) 925-4762

melissa@mkmortgagesolutions.com

Mortgage Architects #12728