At first glance, April’s inflation data might seem like good news: CPI inflation dropped to 1.7%, down from 2.3% in March. That decline has been largely credited to the elimination of the carbon tax, which helped lower prices at the pump.

Lower inflation sounds positive, but the real story is more complex, and unfortunately, not as encouraging for fixed rate borrowers.

The numbers that truly matter when it comes to rate movement tell a different story.

 

Headline vs. Core Inflation: A Closer Look

While the CPI inflation figure dropped, core inflation, which excludes volatile items like food and energy, actually rose by 0.3% in April.

This brings the annualized core inflation rate to 2.9%. When you remove the temporary impact of the carbon tax cut, the data shows inflation is still running hotter than ideal. This isn’t the kind of movement that supports falling mortgage rates.

 

Bond Yields React—and So Do Fixed Rates

Immediately following Statistics Canada’s release of April’s inflation numbers on May 20th, bond yields surged over 4%. As of the next day, May 21st, they were up another 3% reaching levels not seen since January 2025.

Why does this matter? Because fixed mortgage rate pricing is closely tied to bond yields.

Here’s what we’ve seen over the past few months:

  • January 2025: Lowest insured 5-year fixed rate sat at 4.19%
  • Early April: After yields hit a 3-year low, that dropped to 3.64%
  • Now (May 21st): The lowest 5-year fixed rate has climbed back up to 3.84%

This spike in yields is now putting serious upward pressure on fixed rates, and lenders have already begun to respond. It’s just a matter of time before the 3.84% rate increases as well. (3.84% is not available in all situations. Please contact us to find the lowest rate you’re eligible for).  

 

Tariffs Could Further Impact Rates

Adding to the uncertainty is the potential impact of tariffs. According to BMO, new U.S. tariffs are expected to push U.S. inflation toward 4% this year.

As U.S. bond yields rise in response, Canadian yields are expected to follow suit. This would mean continued pressure on fixed mortgage rates here at home, especially if these inflationary pressures persist over the next few months.

 

Will the Bank of Canada Still Cut Rates?

The Bank of Canada considers multiple factors when setting its overnight rate—jobs data, economic activity, and of course, inflation.

Earlier this month, a weak Canadian jobs report increased the odds of a potential rate cut at the BoC’s next announcement on June 4th. Fewer people working generally leads to less consumer spending, which can help keep inflation in check.

However, that optimism has now been dampened by the latest inflation report. Many analysts are rethinking their projections.

  • BMO Economics: “After a weak jobs report handed the Bank a good reason to cut, this back-up in core above 3% pretty much washes that away.”
  • Derek Holt, Scotiabank Economics: “There is no way that the BoC should be cutting any time soon, if at all.”

While Scotiabank had previously forecasted no change to the Bank of Canada rate until the end of 2026, they recently revised their outlook to suggest up to 0.75% in cuts next year. 

I posted the forecasts from all six of the big six banks in my recent blog: Mortgage Rates in 2025: Navigating Uncertainty in a Shifting Landscape. 

 

Why You Shouldn’t Wait to Lock in a Rate

With fixed rates having dropped over 2% from their peak, many borrowers have become complacent, assuming that rates will continue to fall.

But as are now seeing, that trend is reversing.

If you have a home purchase closing or a mortgage renewal within the next 120 days, it’s essential to lock in your rate now. Doing so protects you from further rate increases, while still maintaining the flexibility to take advantage of lower rates should they drop again. 

In these situations, we can still get your rate lowered right up until the week before closing. And if another lender offers something better, we can always move you to the lower rate lender… provided there’s time to make the move. We’re constantly monitoring the market, trying to bring even lower rates to our clients. Locking in early eliminates the risk of rising rates, while still allowing flexibility to adjust if rates improve.

 

Final Thoughts

Economists are still forecasting for further cuts from the Bank of Canada this year… but that is far from guaranteed. If inflation doesn’t show meaningful signs of slowing, then we can’t expect the Bank to cut their rate. If the inflation problem persists, then we could even see a premature rate hike. Let’s hope we don’t get to this point. 

While the Bank of Canada rate decisions are announced on scheduled dates, fixed rates, can move at any time without warning. 

We’ve already seen several lenders raise their fixed rates this week. If the bond yields remain at the current level, then I would expect to see more lenders increase their fixed rates. If the yields continue to rise, then fixed mortgage rates would continue to rise with them. 

If you have a mortgage renewal or purchase closing within 120 days, you’ll want to start your approval process now. This locks in your rate. We’ll then monitor the market for better options, giving you both flexibility and peace of mind in a volatile rate environment.