By Steve Scherer and Ismail Shakil
OTTAWA (Reuters) -Inflation in Canada remains too strong, and higher interest rates will be needed to cool the overheating economy, Bank of Canada Governor Tiff Macklem said in testimony at the House of Commons on Wednesday.
"Inflation has come down in recent months, but we have yet to see a generalized decline in price pressures," Macklem said. "This tightening phase will draw to a close. We are getting closer, but we are not there yet."
After a strong job gain report for October, Canada's annual inflation rate held steady that same month at 6.9%, still far above the central bank's 2% target, while core inflation measures were mixed, data showed last week.
"We anticipate that (inflation) will stay quite high for the rest of this year. It will start to decline next year," Macklem told members of parliament. "We are resolute to get inflation back to our target."
The Bank of Canada raised rates by 50 basis points last month, lifting the policy rate to 3.75%, the highest since 4% seen in January 2008. It also forecast growth would stall from the fourth quarter this year through the middle of next year.
Money markets have fully discounted 25 basis points of further tightening at the Bank of Canada's next policy decision on Dec. 7 and see a 20% chance of a 50-basis-point hike.
Conservative lawmakers pressed Macklem to explain what the bank should have done differently to avoid the spike in inflation.
Macklem reiterated that "with hindsight", the bank would have started tightening monetary policy sooner, adding the bank would review how monetary tools have worked during this period.
"When we get inflation all back down to 2%, I think we are going to have to have a thorough review of how all our tools worked," he said.
Conservative Party leader Pierre Poilievre has said he would fire Macklem and blames quantitative easing for having fueled price increases.