BoC is analyzing how AI might boost demand and contribute to inflation as businesses invest in new technologies
Bank of Canada’s Tiff Macklem said that the rapid adoption of artificial intelligence by businesses could create short-term inflationary pressures by increasing demand, even though the full impact of the technology won’t be visible for some time.
Speaking at an AI conference in Toronto, Macklem explained that AI is already playing a significant role in boosting the economy. Investments in AI technologies are contributing to economic growth, but there’s also a growing strain on resources, particularly with the rising demand for electricity as new data centres are built to support AI systems.
"In the short run, AI could boost demand more than it adds to supply through faster productivity growth," the BoC Governor said. "If that happens, AI adoption may add to inflationary pressures in the near term," he said.
As businesses increasingly adopt AI, central bankers, whose primary focus is keeping inflation low and stable, are now looking at how this technology will influence prices, employment, and the broader economy.
Macklem emphasized that understanding how AI will affect workers and consumers is a critical focus for the central bank.
The Bank of Canada has begun to adopt AI in its operations, using the technology to forecast inflation, monitor economic sentiment, verify data, and improve efficiency. However, Macklem described the central bank’s approach as cautious, acknowledging that AI’s full potential is still being explored.
"When you enter a dark room, you don't go charging in," he said. “You cautiously feel your way around.”
Macklem added that the uncertainty surrounding AI’s long-term impact could lead to more volatile inflation trends, especially as the world becomes more susceptible to economic shocks.
While there’s no clear evidence yet that AI is significantly displacing workers and causing widespread job losses, Macklem said predicting its potential far-reaching effects remains challenging.
The BoC’s cautiousness is also in line with global sentiments. The Bank for International Settlements (BIS), which collaborates with central banks worldwide, recently advised that while AI could bring substantial benefits, it should not replace human judgment in critical areas like setting interest rates.
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Canada is also taking steps to manage AI responsibly. Last year, the country launched a Voluntary Code of Conduct on the development and management of advanced AI systems, including generative AI. This code sets guidelines for companies to ensure the responsible use of AI, focusing on ethical development and management practices.
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