Mortgage Blog

Understanding Inflation in Canada: What It Means for Homebuyers and Borrowers

March 24, 2025 | Posted by: Yelena Markus

As a trusted mortgage broker in Montreal, Yelena Markus helps clients navigate the financial landscape, and a key factor in that landscape is inflation. Understanding how inflation works—and how it impacts mortgage rates, borrowing power, and homeownership decisions—is crucial whether you're buying your first home, refinancing, or investing in property.

What Is Inflation and How Is It Measured?

Inflation refers to the rate at which the prices of goods and services increase over time, reducing the purchasing power of your money. In Canada, inflation is primarily measured through the Consumer Price Index (CPI), which tracks the price movement of a basket of essential consumer goods and services.

CPI is categorized into eight components, including shelter, food, transportation, health, and personal care, each with a specific weight based on household spending habits. These weights are reviewed annually to ensure accuracy.

Canada’s Inflation Rate as of February 2025

As of February 2025, Canada’s annual inflation rate rose to 2.6%, up from 1.9% in January. The increase is attributed to the expiry of federal tax breaks (like GST/HST relief) and rising costs in core sectors such as shelter and dining. Restaurant prices alone saw a much smaller decline compared to January, signaling upward pressure on inflation.

Shelter remains the largest contributor, influenced heavily by rising mortgage rates, rent increases, and population growth.

Core Inflation and the Bank of Canada’s Approach

The Bank of Canada doesn’t rely solely on headline inflation. It uses three core metrics:

• CPI-trim: Removes volatile outliers to focus on persistent trends.

• CPI-median: Looks at the mid-point of price changes.

• CPI-common: Tracks price changes that are widespread across categories.

In February, CPI-trim and CPI-median both reached 2.9%, reinforcing the Bank's cautious stance on interest rate cuts.

How Inflation Impacts Mortgage Borrowers

When inflation rises, the Bank of Canada may increase the policy interest rate, which affects both fixed and variable mortgage rates. For homeowners, this means:

• Higher monthly payments on variable-rate mortgages.

• Reduced affordability when applying for a new mortgage.

• Stricter mortgage stress test thresholds.

As a dual-licensed mortgage and real estate broker, Yelena Markus can help you understand how inflation trends impact your borrowing capacity and guide you through strategies to lock in the best rate, whether fixed or variable.

Regional Inflation Trends Across Canada

Inflation doesn’t impact all provinces equally. Here's a snapshot of year-over-year inflation rates by province in February 2025:

These regional differences matter, especially when comparing real estate affordability and home financing options.

What Drives Inflation?

Inflation typically stems from three main sources:

• Demand-Pull Inflation: When demand outpaces supply.

• Cost-Push Inflation: When production costs rise (e.g., lumber or fuel).

• Built-In Inflation: When wages rise to match higher living costs, triggering a wage-price spiral.

Real Estate and Mortgage Tips During High Inflation

• Review your mortgage: If you’re on a variable rate, it might be time to explore fixed options.

• Consider pre-approval: Get locked into a rate before further increases.

• Compare lenders: Work with an independent mortgage broker like Yelena Markus to access a wide range of competitive offers from A-lenders, B-lenders, and alternative lenders.

Is a Rate Cut Coming in April?

On March 12, the Bank of Canada reduced its target overnight rate to 2.75%, with more cuts possibly on the horizon. Bond markets are predicting a 36% chance of a further 0.25% cut in April. Lower rates may present new opportunities for refinancing or purchasing.

How Inflation Compares Globally

Canada’s 2.6% inflation remains modest compared to the U.S. (2.8%), showing a relatively stable economic environment. But this stability comes with ongoing policy changes, which borrowers must track carefully.

How to Calculate Inflation

To estimate how much inflation has affected the price of a good or service:

Formula:
Inflation Rate = (Current Price - Past Price) / Past Price x 100

Example:
If cherries cost $6.99 last year and $8.99 this year:
Inflation Rate = (8.99 - 6.99) / 6.99 x 100 = 28.61%

Who Gains and Who Loses from Inflation?

• Winners: Businesses in real estate and retail that can raise prices.

• Losers: Consumers with fixed incomes, especially those spending most of their budget on essentials like rent, food, and transportation.

Final Thoughts from Yelena Markus

Inflation may be an economic indicator, but its effects are deeply personal—especially when it comes to housing, mortgage planning, and financial security. If you're unsure how these changes affect your mortgage options or buying power, I’m here to help.

✅ Let’s talk about your mortgage strategy today.
???? Serving clients across Montreal and surrounding areas, I provide bilingual support (English and French) and solutions tailored to your needs.

Get pre-approved. Get clarity. Get moving—with Yelena Markus.

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