Canada's central bank on Wednesday hiked its key lending rate 0.75 points to 3.25 percent – its highest level in 14 years – in a bid to tame runaway inflation.

In a statement, the Bank of Canada said overall prices have eased since a peak in June, but still remain far above its two percent inflation target. And it signalled that further rate hikes are coming in the months ahead.

"Given the outlook for inflation, the (bank's) governing council still judges that the policy interest rate will need to rise further," it said.

The bank blamed the effects of Covid-19 outbreaks, ongoing supply chain disruptions, and the war in Ukraine for dampening growth and boosting prices in Canada and around the world.

Canadian domestic demand remains strong, while its labour market is tight, but recent rate hikes have helped to slow the housing market "following unsustainable growth during the pandemic," the bank said in its statement.

Economic activity in the United States – Canada's largest trading partner – meanwhile, has moderated, and number two export market China is "facing ongoing challenges from Covid shutdowns," it said.

Commodity prices as well have been volatile, with oil, wheat and lumber prices falling a bit, but with natural gas prices still up. (AFP)