Bank of Canada Governor Tiff Maclem says more interest rate hikes are necessary to reduce inflation, despite some early signs of an economic slowdown. Speaking to the Halifax Chamber of Commerce on Thursday, Maclem said that high inflation increasingly reflects domestic price pressures, adding that while global events such as the pandemic and the Russian invasion of Ukraine have pushed prices up, demand exceeds supply more broadly in the Canadian economy. Maclem said the bank's early assessment that high inflation was temporary was "overly optimistic," as with the full reopening of the economy in the spring, pent-up demand for services in sectors such as travel and entertainment began pushing inflation higher. After inflation reached an annual rate of 8.1 percent in June, the pace of price increases in Canada has since slowed, largely due to falling gas prices. In August, the annual inflation rate was 7.0 percent. However, Maclem said the core measures of inflation "have not yet declined significantly" even with the drop in headline inflation. Since the Bank of Canada is monitoring inflation and the effects of rising interest rates, the governor said he would pay close attention to its core inflation measures, which tend to be less volatile than the overall inflation rate. Also, despite lower commodity prices and easing global supply chains, these developments are not enough to reduce inflation, according to Maclem, who said that with continued tightening in labor markets, the economy still suffers from "excess demand" and inflation remains very high. Additionally, the central bank is monitoring inflation expectations among individuals and businesses due to concerns that inflation could become "entrenched," as high inflation expectations can lead companies to set higher future prices and ask workers for higher wages in future wage contracts. Maclem said that to keep inflation expectations under control, "Canadians will need to see inflation clearly decline." The Bank of Canada is scheduled to announce the next interest rate on October 26.