On the Radar: The U.S. Inflation Scare Was Mostly Oil, Canada’s Economy Is Cracking, and Ottawa Just Cut the Gas Tax. What Does It Mean for Canadian Mortgage Rates?

Quick Takes:

1. U.S. headline PPI jumped to 4.0% year-over-year, but core PPI came in at 3.8%, below the 4.2% forecast, confirming the inflation spike is almost entirely an energy story tied to the Iran war.
2. Canadian building permits collapsed 8.4% month-over-month in February, with non-residential permits down 24% and Ontario off 15%, pointing to a Canadian economy that was paralyzed before the March 30 HST and development charge announcement.
3. U.S. existing home sales fell 3.6% to a 3.98 million annual rate, below forecast, as the NAR slashed its 2026 growth outlook from 14% to 4%.
4. Prime Minister Carney suspended the federal fuel excise tax from April 20 to September 7, injecting roughly $2.4 billion in fiscal relief to offset the oil shock.

This week stacked one major data point on top of another. On Monday, Statistics Canada reported that Canadian building permits collapsed, while the U.S. National Association of Realtors said American existing home sales kept sliding. On Tuesday, the U.S. Bureau of Labor Statistics released a Producer Price Index that looked scary on the surface but calm underneath.

Tuesday continued with Prime Minister Carney had suspended the federal fuel excise tax, and the Bank of Canada had published a research paper showing that high mortgage rates are driving rental inflation. The U.S. inflation scare is almost entirely about oil, not a broad re-acceleration in prices. Meanwhile, the Canadian economy is visibly weakening.

The U.S. Inflation Scare Was Mostly Oil

The headline 4.0 percent year-over-year PPI print was the hottest reading since February 2023. However, it came in well below the 4.6 percent consensus forecast. The month-over-month gain was 0.5 percent, half the 1.1 percent economists had expected.

Strip out the energy noise and the underlying picture was remarkably calm. Core PPI, which excludes food and energy, rose only 0.1 percent on the month, against a 0.5 percent forecast. The annual core rate landed at 3.8 percent, below the 4.2 percent expectation.

The energy numbers themselves were spectacular. Wholesale diesel jumped 42 percent, home heating oil 39 percent, jet fuel 31 percent, and gasoline 16 percent in a single month. All of it tied back to the Iran conflict and the U.S. naval blockade of Iranian ports that briefly pushed Brent above $100 a barrel.

Bond markets responded by pricing out the worst-case inflation fear. The U.S. 10-year Treasury yield slipped four basis points to 4.26 percent, while the 2-year fell to 3.75 percent. Fed Vice Chair Michael Barr said on April 15 it is “prudent for Fed to take time, look at data, before changing policy again,” and CME FedWatch now prices a near-certain hold at the April 29 meeting.

Canada’s Construction Economy Is Cracking

Statistics Canada reported on Monday that the total value of building permits fell 8.4 percent in February to $12.09 billion. The non-residential side of that ledger was brutal, collapsing 24 percent month-over-month to $3.96 billion, the steepest drop in nearly two years. On a constant-dollar basis, permits are down 11.5 percent year-over-year, which is recessionary territory.

Ontario led the decline, with total permits off 15.1 percent to $4.58 billion. Quebec fell 16.3 percent and Alberta 14.8 percent. British Columbia was the sole bright spot at plus 29.3 percent, but that number was entirely driven by a single $183.9 million wastewater treatment approval in Vancouver.

On the residential side, multi-family permits rose 3.4 percent while single-family fell 1.6 percent, continuing the long rotation away from low-density construction. Critically, the February data predates the March 30 federal-provincial announcement that eliminated the HST on new homes up to $1 million and cut development charges by up to 50 percent in priority municipalities.

Ontario carries the worst of this data, but Ontario also has the biggest policy tailwind coming. The HST elimination and development charge cuts are a direct response to exactly the kind of paralysis showing up in these February numbers, and we covered the details in our March report on the Ontario package. The next few months of permit data should start to show whether developers are moving projects off the shelf.

Even the U.S. Housing Market Is Freezing

The same day the Canadian permit data landed, the U.S. National Association of Realtors (NAR) reported that existing home sales fell 3.6 percent in March to a seasonally adjusted annual rate of 3.98 million, below the 4.06 million consensus. On a year-over-year basis, sales were down 1.0 percent.

Prices kept rising anyway. The national median existing-home price hit a March record of $408,800, up 1.4 percent year-over-year, marking the 33rd straight month of year-over-year price gains. This is the lock-in effect at work: incumbent homeowners with pre-2022 mortgages will not list, which keeps inventory scarce and props up prices even as demand evaporates.

NAR Chief Economist Lawrence Yun said “lower consumer confidence and softer job growth continue to hold back buyers” and the association trimmed its 2026 sales growth forecast from 14 percent to just 4 percent. That matters for Canada because it confirms the slowdown is continental, not just domestic. Both housing markets are stuck.

Ottawa Cut the Gas Tax and the Bank of Canada Built the Case for More Cuts

On Tuesday, Prime Minister Carney suspended the federal excise tax on gasoline and aviation fuel from April 20 through September 7. The cut is worth 10 cents per litre on gasoline and 4 cents on diesel, and the Department of Finance estimates it delivers roughly $2.4 billion of relief directly to Canadian consumers. Carney called it “a responsible, temporary measure consistent with what it takes to build a stronger economy.”

Finance Minister François-Philippe Champagne confirmed the Spring Economic Update will be tabled April 28, and it will presumably flesh out the fiscal response further. That same morning, the Bank of Canada published Staff Analytical Paper 2026-14, arguing that high mortgage interest costs are themselves a driver of rental inflation. That gives the Bank an explicit framework for cutting further, because holding rates higher for longer feeds directly into shelter CPI.

What This Means for Canadian Mortgage Rates

Canada should be cutting rates. The economy is slowing, permits are collapsing, and the Bank of Canada is publicly flagging that its own policy rate is making rental inflation worse. Every piece of domestic data this week pushed in the same direction.

The problem is the U.S. Fed is holding, because U.S. inflation is still 3.3 percent and the American economy keeps running. If the Bank of Canada cuts too far ahead of the Fed, the Canadian dollar weakens, and a weak loonie makes imports more expensive. That undoes the inflation progress the Bank is trying to protect.

The most likely path is slow, careful easing. Fixed rates have some room to drift lower if U.S. yields cooperate. Variable rates should see more cuts over the course of the year, but not all at once.

What Could Change the Picture

Two things could flip this story fast. First, if the U.S.-Iran ceasefire collapses again and the Strait of Hormuz closes in earnest, oil could retrace back above $100 and the soft core PPI reading will not matter to anyone. Energy would bleed into headline inflation on both sides of the border, and central banks would lose their runway to cut.

Second, the USMCA sunset review on July 1 is starting to generate real noise. U.S. Trade Representative Jamieson Greer warned this week that Washington is “not prepared to rubberstamp” a 16-year renewal. A messy renegotiation would hit Canadian exports and drag on growth, which would likely push the Bank of Canada to cut harder and faster than the loonie can comfortably absorb.

Bottom Line

The scariest U.S. inflation number in three years turned out to be an oil story wrapped in a headline. Canada’s economy is slowing, and the Bank of Canada has every reason to cut further, but it cannot get too far ahead of the Fed without punishing the loonie.

For mortgage holders, the direction is mildly friendly but slow.