The Bank of Canada says inflation won’t drop to its two per cent target until mid-2025 – six months later than it had previously expected.

In its monetary policy report for July – released Wednesday along with the announcement of the latest key interest rate hike to five per cent – the central bank discussed the slower return to forecast than was projected in April.

The new projected inflation timeline isn’t a sure thing, the bank noted.

“Inflation is expected to return to two per cent in the middle of 2025, although the timing is uncertain given the gradual movement of inflation toward the target in the outlook,” the report said.

“The delayed return to target largely reflects the greater persistence of excess demand in 2023, the upward revision to house prices and, to a lesser extent, higher-than-expected imported goods prices.”

Statistics Canada’s latest CPI inflation print came in at 3.4 per cent.

The Bank of Canada noted in its Wednesday report that the decline from eight per cent in June 2022 to its current rate “occurred rapidly, reflecting large declines in oil prices, lower inflation in other goods prices and base-year effects as large past increases in these prices fall out.”

But the bank’s continued battle with inflation is entering a new phase, their report continued.

“Looking ahead, the next stage in the decline of inflation toward target is expected to take longer and is more uncertain,” the report said.

At a news conference Wednesday, Bank of Canada Governor Tiff Macklem said he thinks the central bank is “close” to the end of its tightening cycle, but it will watch economic data closely and take each rate decision as it comes.