Canada Inflation

Market Split on April Rate Cut After Inflation
Comes in Lower Than Expected

Inflation eased despite the end of tax holiday. Inflation unexpectedly moderated 30 basis points to 2.3 per cent in March, as lower travel and gasoline prices more than offset the bounce back after the end of the GST/HST tax holiday. Gasoline prices have largely been falling due to tariffs threatening global demand, while travel costs are normalizing after a spike in February. Nevertheless, when looking at the central bank’s preferred measures of core inflation – CPI-median and CPI-trim – they also showed their first in-range reading since September. That said, these core measures are still at an elevated average rate of 2.9 per cent. The three-month annualized pace of those averaged core measures is also holding high at 2.7 per cent.

April rate cut a coin toss. Canada’s economy was gaining momentum last year and into the early parts of 2025, causing underlying price pressures to mount in recent months. Combined with tariffs threatening to push prices up further, an interest rate pause in April was becoming more likely, with money markets pricing in a roughly 60 per cent chance prior to the inflation release. However, following March’s unexpected moderation, markets are now pricing in a roughly 50 per cent chance of a rate cut at the Bank’s next meeting. Yet the combination of core inflation still being elevated and economic risks beginning to ease – as trade tensions with the U.S. are slowly deescalating – could tip the scale toward a rate pause. This will give the BoC time to evaluate the impacts of retaliatory tariffs on inflation and economic growth. Regardless, further monetary easing is still expected, with many forecasts calling for a terminal rate around 2.0 to 2.25 per cent. 

Commercial Real Estate Outlook

Slowing travel inflation could be a byproduct of trade war. The 9.0 per cent monthly drop in travel service expenses drove March’s overall inflation deceleration. This trend reflected some normalization after travel tour prices spiked in February due to President’s Day, but it may also suggest some weakness linked to the ongoing travel boycott to the United States. In March, visits by road to the U.S. were down 32 per cent year over year and 13 per cent by air. Indeed, air transportation prices fell 12 per cent year over year in March, which might indicate deteriorating U.S.–bond travel demand. Despite this, Canada’s hotel property sector could benefit from ongoing U.S. boycotts. Not only could the sector attract more domestic and overseas travellers, but a weak local currency may also aid inbound visits, helping offset some of the negative impacts from global economic uncertainties.

Tighter immigration impacting multifamily. In an attempt to restore affordability, Canada’s federal government announced drastic immigration changes that could cause a decline in total population if fully implemented. These policies are beginning to take shape, with annual population growth hitting 1.8 per cent as of the end of 2024, down from a peak reading of 3.2 per cent to begin the year. While rent inflation remained elevated at 3.9 per cent in March 2025, this slowdown in population gains – coupled with robust rental supply growth – has begun to soften rent inflation, which hit nearly 8.0 per cent in 2022. Looking ahead, as both candidates for Prime Minister are calling for even tighter immigration, multifamily rent growth will likely continue to slow the overall pace of inflation later this year.

* Through March; ** CPI-Trim and Median are 3-month annualized rates; ^ Inflation through March
Sources: Marcus & Millichap Research Services; Altus Data Solutions; Bank of Canada; Canada
Mortgage and Housing Corporation; Capital Economics; CoStar Group, Inc.; Statistics Canada