Canada Housing Market

What Ontario Buyers, Sellers, and Homeowners Need to Know

Canada’s annual inflation rate dropped to 1.7% in April 2025, down from 2.3% in March, according to the latest Statistics Canada report released on May 20. The sharp decline is largely attributed to the federal government’s removal of the consumer carbon tax, which contributed to falling fuel and energy prices.

While this drop may appear promising for households across Ontario grappling with affordability pressures, the underlying data paints a more complicated picture: core inflation, which excludes volatile items such as food and energy, rose across all three of the Bank of Canada’s preferred measures – some climbing above 3% [1].

Energy and Shelter Costs Lead the Decline

Following the elimination of the federal carbon tax, gasoline prices dropped 18.1% year-over-year and natural gas prices fell 14.1% in April [1]. This led to a temporary softening of headline inflation.

Shelter inflation also eased, rising only 3.4% compared to previous months -the lowest level recorded since 2021. According to economist Tu Nguyen at RSM Canada, the decline in shelter inflation is largely due to reduced housing demand and tighter immigration policy, which have had a cooling effect on the rental and ownership markets [2].

Nguyen added that shelter prices are expected to remain stable over the next few months, particularly if interest rates hold steady and market conditions remain balanced – news that could be encouraging for buyers and sellers in Ontario’s overheated regions like the GTA, Hamilton, and Ottawa.

Core Inflation Clouds the Outlook

Despite falling fuel and shelter prices, core inflation – which strips out temporary volatility – moved higher in April. This is especially significant because the Bank of Canada monitors these core metrics to guide its interest rate decisions.

BMO chief economist Douglas Porter noted, “The big relief from lower gasoline prices in April masked an unfriendly inflation picture beneath the surface… Some of that upswing in underlying prices appears related to the simmering trade war” [3].

Porter also stated that earlier speculation about a possible rate cut following weak employment data may no longer hold weight in light of rising core costs.

Grocery Prices Keep Climbing

One of the biggest contributors to April’s core inflation increase was food. According to Statistics Canada, grocery prices rose 3.8% year-over-year, up from 3.2% in March – a trend that has now outpaced overall inflation for three consecutive months [1].

The largest price jumps came from:

• Fresh vegetables
• Fresh and frozen beef
• Coffee and tea
• Sugar and sweets

Additionally, restaurant meals also saw price increases.

Porter attributes rising food costs to several factors, including a weaker Canadian dollar earlier in the year and new tariffs on U.S. imports, both of which have driven up the cost of imported goods [3].

Interest Rate Decision: What’s Next?

The Bank of Canada is scheduled to make its next interest rate announcement on June 4. While economic growth projections for 2025 remain weak, the rise in core inflation may delay any immediate policy changes.

“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,” Porter said [3].

This has significant implications for Ontario’s real estate market:

• Borrowing costs may remain high through summer, keeping pressure on mortgage affordability.
• Investors may delay major moves as they wait for clearer signals on rate direction.
• Homebuyers and sellers should remain cautious, especially in markets that saw heavy speculation or price growth during the low-rate era.

Summary for Ontario Real Estate Stakeholders

While lower energy and shelter costs are welcome developments, the persistence of core inflation and grocery price pressures suggests that affordability will remain a challenge for many Ontarians.

Buyers, homeowners, and investors should pay close attention to the June 4 Bank of Canada announcement. Whether or not the Bank cuts rates will depend not only on inflation, but on a wide range of economic indicators — including employment, GDP growth, and international trade tensions.

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References:

[1] Statistics Canada. Consumer Price Index, April 2025. Released May 20, 2025.
[2] Tu Nguyen, RSM Canada. Monthly Economic Outlook. May 2025.
[3] Douglas Porter, BMO Economics. Economic Commentary on April Inflation Data. Published May 20, 2025.