Julie Gordon, David Ljunggren

OTTAWA, (Reuters) – The Bank of Canada said Tuesday that if demand is allowed to rise too fast, it can lead to further inflation. Inflation has already reached a record 31 years and is more than three-fold the Bank’s target.

Carolyn Rogers, Senior Deputy Governor (NYSE:), stated in her first speech after joining the governing body in December that interest rates must rise. The bank may need to “forcefully” act, a term that central bank officials frequently use in recent statements by Rogers, however her remarks were not about this.

She told a Toronto women’s group, “With Canada’s economy beginning to overheat,”

Rogers admitted that interest rates are still low despite the Bank of Canada’s rare 50-basis point (bps), increase to 1% last month, but reiterated their need to move higher.

She said that “Raising policy rates will help moderate expenditure and rein in inflation,” adding that the central bank is committed to getting inflation back at target.

Rogers identified the global supply chain bottlenecks in the world and the high prices of commodities as main factors driving Canada’s inflation rate to “closer to 7%”, well beyond the Bank of Canada’s 1-3% target and 2% control rate.

She added that Canadians also spend more and business investment is increasing. Unemployment has fallen to a new low, forcing employers to be competitive for workers. This will lead to wage inflation.

As the greenback fell against major currencies, the Canadian dollar traded 0.2% lower at 1.2850, or 77.82 U.S. Cents.

The Bank of Canada will make its next policy announcement on June 1 at 50 bps. There is a 15% chance of an even larger move.

Last week, Governor Tiff Macklem stated that Canada was experiencing overheating and that it is creating inflationary pressures in the country. He reiterated his call for higher interest rates.

Canada’s inflation reached a record 6.7% in March, a new 31-year high. This was despite broad price gains. It’s the 12th consecutive month that it has been above the 1-3% limit set by central banks.