The Bank of Canada has warned that inflation will remain higher for longer than previously predicted, implying that an interest rate hike may occur sooner than expected.

The central bank said on Wednesday that annual inflation rates will continue to rise through the rest of the year, averaging 4.75%, and will be 3.4% next year, up from 2.4% this year, before returning to the 2% target by 2023.

Tiff Macklem, governor of the Bank of Canada, stated that rising prices are making it difficult for Canadians to pay their bills.

"I want to assure you that inflation is not going to stay as high as it is today, even if it is going to take somewhat longer to come down," he said. "The Bank of Canada is committed to ensuring that price increases we're experiencing today don't become ongoing inflation. ... As these forces play out, it is our job to bring inflation back to target, and I can assure you we will do that."

The new pace of bond purchases, according to Macklem, will be determined by the strength of the recovery and the path of inflation, and it is "reasonable to expect" that bond purchases will continue at least until the bank raises its policy rate.

Tiff Macklem, dean of U of T's Rotman School of Management, appointed  governor of Bank of Canada – India Education | Latest Education News |  Global Educational News | Recent Educational News

Additional Comments From Macklem

The jobless rate is a data point that is important. We do need to look at the range of indicators.

If we see signs of prolonged inflationary pressures, action will be taken to bring inflation down to the target. We expect inflationary pressures to ease as we move forward.

I am impressed by how far the economy has progressed since the crisis began.

Complications will be with us for a while longer; it may take some time to work through labor market issues.

There is probably less excess supply in the economy than we anticipated.