The Bank of Canada has warned that the cost of living would continue into next year, but signaled that it was not yet ready to pull its main lever to contain inflation.

The annual rate of inflation rose to 4.7 percent in October, a high from the pandemic era and the fastest year-over-year increase in the consumer price index in 18 years.

The Bank of Canada said high inflation rates will continue into the first half of next year, but should fall back into their comfort zone of between one and three percent by the second half of 2022.

The bank is forecasting the annual inflation rate to decline to 2.1 percent by the end of next year.

While inflation and the economy broadly follow the central bank’s expectations, the statement released on Wednesday said the bank is “watching inflation expectations and labor costs closely” to ensure they don’t take off and cause prices to spiral.

Comments in the last scheduled interest rate announcement of the year left the key interest rate at its low of 0.25 percent, unchanged from its level in January at the start of the COVID-19 pandemic.

The announcement also stated that the bank does not expect to hike the landmark rate some time ago between April and September next year, unchanged from its previous forecast.

“Overall, the (Bank of Canada) has indeed refused to spit anyone on vacation,” wrote Derek Holt, head of capital markets economics at Scotiabank, in a note. “They stayed on track to start fun rate hikes as early as next April.”

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If the bank moves, it will likely act quickly and furiously, said BMO chief economist Douglas Porter. The bank has raised interest rates quickly from the emergency level in the past, he said and proposed four rate hikes by the end of 2022.

“If the Bank of Canada thinks rates need to go up, they don’t wait, they move relatively quickly,” Porter said.

The bank said the economy appears to have “significant momentum” through the end of the year, having grown at an annualized rate of 5.4 percent in the third quarter of the year, a hair below what the Bank of Canada did had forecast in October.

The Bank of Canada statement said quarterly growth brought overall economic activity to around 1.5 percent of what it was in the final quarter of 2019, before COVID-19 hit Canada’s shores.

The labor market also developed more strongly than expected in November, driving the share of core-age workers with one job to an all-time high and the unemployment rate in February 2020 being 0.3 percentage points above the pre-pandemic level.

However, banknote headwinds from devastating floods in British Columbia and uncertainties from the Omicron variant could add another blow to the tangled supply chains and discourage consumers from spending on services.

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TD senior economist Sri Thanabalasingam said the bank could raise interest rates sooner if Omicron proves to be less of a health concern than initially feared.

An increase in interest rates would affect adjustable rate mortgage rates, which could put a strain on the finances of households that have borrowed $ 121.5 billion in mortgage debt over the course of 2021, including $ 38 billion between July and September.

“I think it will be particularly problematic for Canadians who have taken out fairly large mortgages, especially when rates have been low for such a long period,” said Tashia Batstone, president of FP Canada, a financial planning association.

“That means you have to work harder to stay on your budget, you have to keep track of the debts you are taking out and especially be careful that you may not be able to have the flexibility on mortgage loans.”

The Bank of Canada says inflation will not fall back into the bank’s comfort zone of between one and three percent until the second half of 2022.

The bank is forecasting the annual inflation rate to decline to 2.1 percent by the end of next year.

The bank says it is keeping a close eye on price and wage growth expectations to make sure they don’t create a price hike.