A Bank of Canada official said she sees evidence interest rate increases are working to slow inflation, but reiterated policymakers are prepared to hike further if necessary.

In a speech at the University of Regina in Saskatchewan on Tuesday — the same day data showed the consumer price index rose 4% in August, up from 3.3% in July — Deputy Governor Sharon Kozicki said the “ups and downs” in the pace of inflation in the past couple of months “are not that unusual.”

“Recent data have provided evidence that our policy rate increases are slowing demand. Household credit growth has eased as the impact of higher rates restrained spending among a wide range of borrowers,” she said. “And we are mindful that past increases in interest rates will continue to weigh on activity.”

Bank of Canada Governor Tiff Macklem outside the central bank’s building in 2020.

Kozicki’s comments suggest policymakers are still likely still comfortable staying on the sidelines after holding rates steady at 5% on Sept. 6, opting to wait and assess the impact of their aggressive tightening cycle. Despite the acceleration in headline inflation and persistent underlying price pressures, the central bank is betting a continued softening of economic growth will weigh on consumer prices.

“Both inflation and inflation expectations have come down, and excess demand in the economy is easing. And our past policy actions will continue to have an effect as they work their way through the economy,” she said.

Still, Kozicki reiterated that officials “are prepared to raise the policy rate further if needed.”

While measures of core inflation have eased, recent consumer price index data indicate that inflationary pressures are still broad-based, she said, adding that the CPI-trim rate, which has been excluding mortgage interest costs for more than a year, has been at about 3.5%-4% in recent months.

“Underlying inflation has experienced little recent downward momentum,” she said.

In her speech, titled “How household differences have affected monetary policy since the onset of the Covid-19 pandemic,” she outlined “the pandemic paradox,” — a combination of elevated savings and pent-up demand that leaves some households less sensitive to higher borrowing costs.

“We don’t set our policy based on what is happening to one subset of households or to the price of any one good or service. But we do our best to understand what is going on at a detailed level,” she said. “This helps us do a better job of forecasting where the economy is likely to be headed and helps us balance risks.”

Kozicki said “very strong” consumption growth in the first quarter reflected pent-up demand for services, delayed delivery of some pre-ordered durable goods and unexpectedly strong population growth. In the second quarter, “a marked weakening” in consumption growth and a decline in housing activity contributed to “a sharp slowing of economic growth.”

“We know that if we don’t do enough now, we will likely have to do even more later,” she said. “And that if we tighten too much, we risk unnecessarily hurting the economy.”