Bank of Canada Weighs Removing Mortgage Costs from Core Inflation Measures

Ottawa | October 3, 2025, 10:00 IST — Filed via Reuters

The Bank of Canada is considering a change that could significantly alter how inflation is measured in Canada — specifically, whether mortgage interest costs should continue to be included in the country’s “core inflation” metrics.

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Why the Review Matters

Currently, Canada’s CPI-trim and CPI-median indicators are considered the most reliable measures of underlying inflation. But these gauges still include mortgage interest costs, which have been highly volatile in recent years due to aggressive interest-rate cycles.

Officials argue that including mortgage borrowing costs may “distort” the reading of true inflation trends. When rates rise sharply, inflation readings can appear artificially higher, even if underlying goods and services prices are stable.

This review comes at a time when households are already grappling with expensive renewals, and policymakers want to ensure inflation metrics reflect consumption trends rather than interest-rate policy itself.

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What Stays, What May Change

• 2 % Target Remains: The Bank confirmed that Canada’s 2 % inflation target is not under review.
• CPI Methodology: The focus is squarely on whether removing mortgage interest costs from “core” baskets gives a more accurate signal.
• Broader Evaluation: The BoC is also examining if other temporary or policy-driven costs should be adjusted to avoid double-counting.

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Implications for Borrowers

For Canadians holding variable mortgages, this review doesn’t directly lower payments. However, it could influence how the Bank interprets future inflation reports — and therefore how quickly it adjusts policy rates.

If mortgage interest is excluded, inflation could appear lower, giving the Bank more room to cut rates faster. That would eventually flow into cheaper borrowing costs across variable and (to a degree) fixed mortgage segments.

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Market Reaction

Markets initially read the review as dovish — meaning more supportive of future rate cuts. Bond yields dipped slightly after the announcement, with traders speculating that the BoC may lean toward further easing if headline inflation appears closer to target once mortgage costs are stripped out.

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Risks Ahead

Economists warn that removing mortgage interest could understate cost-of-living pressures for homeowners. Critics argue it might make inflation look more comfortable than what families actually feel in their monthly budgets.

The challenge will be balancing statistical accuracy with lived reality — ensuring the inflation index both reflects real household costs and gives the Bank clear policy guidance.

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Outlook

The Bank of Canada is expected to release a consultation paper later this year outlining proposed changes. No immediate adjustment to the CPI framework has been confirmed.

For now, borrowers should expect ongoing debate — but the discussion signals policymakers are keen to modernize Canada’s inflation toolkit as mortgage costs play an outsized role in today’s economy.