On the Radar: Canadian Inflation Jumped on Gas Prices, but Businesses and Consumers Are Telling Two Different Stories. What Does It Mean for Mortgage Rates?

Capital Markets update
Apr 24, 2026

First National Financial LP

Quick Takes:

Canadian headline inflation jumped to 2.4% in March from 1.8% in February, but the increase was almost entirely gasoline, which surged 21.2% month-over-month, the largest single-month jump on record.
Strip out energy and Canadian inflation was only 2.2% year-over-year, with the Bank of Canada’s preferred core measures sitting at 2.2% for trim and 2.3% for median.
The Bank of Canada’s Business Outlook Survey showed firms were turning optimistic before the war, with recession planning collapsing from 22% to 9%, but follow-up calls after the conflict began showed firms raising near-term inflation expectations.
Consumers told the Bank of Canada they are cutting back, with 28% postponing or reducing major spending since the war began and 21% cancelling or delaying trips because of rising travel costs.

Three major releases landed this week, and together they painted a complicated picture for Canadian mortgage rates. Statistics Canada reported that headline inflation jumped to 2.4 percent in March, while the Bank of Canada published its first-quarter Business Outlook Survey showing business sentiment had been improving, and the Bank’s Canadian Survey of Consumer Expectations revealed that households are pulling back on spending.

The inflation number looked scary at first glance. However, the details told a calmer story underneath, while the two Bank of Canada surveys exposed a widening gap between how businesses and consumers see the economy heading into the April 29 rate decision.

The Inflation Jump Was Almost Entirely Gasoline

Statistics Canada reported on Monday that the Consumer Price Index rose 2.4 percent year-over-year in March, up sharply from 1.8 percent in February. Even so, the result came in below the 2.6 percent consensus forecast, which means the increase was smaller than economists expected.

Gasoline was the entire story. Pump prices surged 21.2 percent in a single month, the largest monthly increase on record, driven by the supply shock from the war in the Middle East. On a year-over-year basis, gasoline was up 5.9 percent and overall energy prices rose 3.9 percent, after falling 9.3 percent the month before.

Take gasoline out, though, and inflation was running at just 2.2 percent year-over-year, actually slower than the 2.4 percent recorded in February. The Bank of Canada’s preferred core measures confirmed the calm underneath: CPI-trim came in at 2.2 percent and CPI-median at 2.3 percent, both near or below the 2 percent target.

Grocery prices were the one domestic pressure point, rising 4.4 percent year-over-year after 4.1 percent in February. Shelter costs rose 1.7 percent, up slightly from 1.5 percent but still well below the 5 percent readings that dominated 2024. Lower natural gas prices, down 18.1 percent, helped offset the gasoline shock within the broader energy category.

Businesses Were Turning Optimistic, Then the War Changed the Conversation

The Bank of Canada’s Business Outlook Survey was conducted between February 5 and 25, before the war in the Middle East began. Results showed that business sentiment had improved for the second straight quarter, returning to levels similar to those before the U.S. trade conflict started.

Most striking was the collapse in recession planning. Only 9 percent of firms said they were planning or budgeting for a recession over the next 12 months, down from 22 percent in the previous quarter and the lowest reading since the Bank started asking the question in 2023. Sales outlooks improved for a third consecutive quarter, investment intentions were the strongest since trade tensions began, and hiring plans were normalizing.

Then the Bank made follow-up calls between March 18 and 27, after the conflict started. Firms in sectors exposed to the war reported rising costs for energy, freight, and fertilizer. Near-term inflation expectations jumped, even as longer-term expectations held steady between 2.5 and 3 percent.

Consumers Are Pulling Back and Bracing for Higher Prices

The Canadian Survey of Consumer Expectations told a different story. Even before the war, spending plans remained muted, held back by concerns about high prices and economic uncertainty. Consumers continued to view the labour market as soft, and fears of job loss stayed elevated.

A special survey conducted between March 26 and April 2, after the conflict began, sharpened the picture. Most households said they expect the war to harm the Canadian economy and drive prices higher. Among respondents, 28 percent said they had postponed or reduced major spending, and 21 percent had cancelled or delayed trips because of rising travel costs.

Inflation expectations remained above the survey’s historical average, driven largely by food prices. Consumers told the Bank they perceive current inflation at roughly 3.9 percent, well above the actual 2.4 percent reading. If the war persists, households expect gasoline and food prices to climb further over the next 12 months.

What This Means for Canadian Mortgage Rates

The Bank of Canada announces its next rate decision on April 29, and markets are pricing a 93 percent chance it holds at 2.25 percent. Core inflation numbers give the Bank room to cut, but the oil-driven headline spike and rising inflation expectations from both firms and consumers make that a hard sell right now.

Variable rates depend on the Bank’s overnight rate, and the weak underlying inflation picture supports the case for cuts over the summer. However, the Bank said in its March deliberations that it would look through the oil shock but watch carefully for signs that energy prices are spreading into broader inflation. That is exactly what the follow-up survey calls are starting to show.

Fixed rates follow Government of Canada bond yields, and the 5-year yield rose to 3.09 percent on Monday. With U.S. Treasury yields still elevated and the Fed holding, GoC yields have little room to fall. Softer core CPI keeps them from climbing further, but it is not enough to pull them down.

What Could Change the Picture

Next week’s April 29 decision comes with the Monetary Policy Report, which will include updated projections for inflation, growth, and the labour market with the war and oil shock fully baked in. If the Bank signals that it sees the energy spike as temporary and flags growing economic weakness, markets could start pricing cuts for June, and bond yields would respond.

The other risk runs the opposite direction. If the war in the Middle East escalates again and oil pushes back toward $100, grocery and transport costs will follow. That would turn the inflation story from temporary to persistent, and the Bank would lose its runway to cut.

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