Josh Nye, the senior economist at Royal Bank of Canada, notes that the Canadian headline inflation was stronger than expected, increasing to 2.4% in May, while BoC core measures averaged 2.1%.

“Today’s stronger-than-expected inflation data will still be overshadowed by this afternoon’s Fed meeting. The US central bank is under increasing pressure from the president and financial markets to lower interest rates over the second half of this year. That’s not the case north of the border, where markets are pricing in much less easing from the BoC (now less than 50% odds of a cut by end of year) than from the Fed (~50 bps of cuts by October).

Inflation numbers like today’s—with core measures creeping higher in May but remaining around the 2% target—are one reason the BoC faces less pressure to reverse course and begin easing monetary policy.

For now, stable to slightly higher inflation readings and generally improving domestic data allow the BoC to remain patient and monitor the impact of external developments.”