The underlying pressures driving inflation in Canada are likely to peak in the fourth quarter of this year, economists told Reuters, although most of them see signs of rapid price increases and warn that a recession may be needed to avoid a spiral reversal.

Canadian inflation data for August will be released Tuesday, and analysts are forecasting a decline in the core rate to 7.3% from 7.6% in July and a four-decade high of 8.1% in June.

However, all eyes will be on the three main measures of inflation - CPI Common, CPI Median, and CPI Trim - which together are considered the best indicators of underlying price pressures. In July, the average of these three indicators reached a record high of 5.3%.

Six of the eight economists polled by Reuters believe core inflation will peak in the fourth quarter as underlying domestic and global pressures begin to ease, although the path back to the 2% target will not be quick.

The widening range of price increases, rising wages, and rising consumer and business inflation expectations are signs that inflation is becoming increasingly entrenched in the economy, economists told Reuters.

The Bank of Canada hopes to avoid such an outcome, arguing that more aggressive interest rate hikes will be needed to bring inflation back under control.

The central bank has already raised interest rates by 300 basis points in just six months to 3.25 percent, a 14-year high and the highest rate among central banks controlling the 10 most traded currencies.

Still, economists don't expect the move to a wage-price spiral to be permanent, especially if the economy slows.

Economists at Desjardins Group and Oxford Economics also predict that aggressive rate hikes will lead to a recession, although they assess it as a mild recession.

For its part, the Bank of Canada says it can slow growth without driving the economy to disaster.

As for core inflation, the central bank believes it will return to 2 percent in 2024. Most economists agree with that timeline or believe it could happen sooner.