TORONTO (AP) — Canada’s central bank said Wednesday it is raising its target interest rate by a full percentage point in an effort to fight inflation — and warned more rate hikes are likely to follow.

The Bank of Canada raised the overnight rate to 2.5% in the biggest increase since 1998 and the highest level since 2008.

The bank said inflation is higher and more persistent than had been projected and the bank expects it will likely remain around 8% in the next few months. It blamed the war in Ukraine, ongoing supply disruptions and excess demand in Canada.

The bank warned that if elevated inflation becomes entrenched, the economic cost of restoring price stability will be higher.

“With the economy clearly in excess demand, inflation high and broadening and more businesses and consumers expecting high inflation to persist for longer, the Governing Council decided to front-load the path to higher interest rates by raising the policy rate by 100 basis points today” the bank said.

“The Governing Council continues to judge that interest rates will need to rise further.”

The Consumer Price Index in Canada rose by 7.7%, the highest yearly increase in almost 40 years. The bank said more than 50% of price categories have risen by more than 5%.

Most economists had forecasted a rate hike of three-quarters of a percentage point.

"After being overtaken by the Fed in June, the Bank of Canada reclaimed its top-gun status, with the highest policy rate among G7 countries and the biggest step in this tightening cycle, as it seeks to calm inflation fears,” Karyne Charbonneau, a senior economist at CIBC Capital Markets, said in a note.