OTTAWA 26 January (Reuters) – The Bank of Canada said Wednesday that the economic slack was being absorbed. It set the stage for its first interest rate rise since 2018 and predicted higher inflation.

In its January Monetary Report, the Bank stated that “a broad range of measures” – which includes surveys of business sentiment and labor market indicators – suggests that economic slack has been absorbed.

According to the central bank, the Omicron coronavirus variant is slowing the global economy. However, the effect was only temporary and less serious than previous waves. The central bank reduced its outlook for domestic growth to 4.6% from the 5.1% it forecasted in October and to 4.0% from 2022 from 4.3%.

It now expects inflation to average 4.2% by 2022. This is up from the 3.4% predicted in October. In 2023 it sees consumer prices growing at 2.3% per year. The bank will then keep its target of 2% for 2024. According to the bank, inflation will return to 2% at the end of 2022 as it had predicted in October.

Inflation will be reduced by supply chain bottlenecks in 2022. According to it, strong growth is possible due to robust demand as well as recovering supply over the forecast horizon.