Fri Sep 20 12:39:13 UTC 2024: ## AI: A Boon for Productivity, but Could Fuel Inflation, Says Bank of Canada Governor

**Toronto, Canada** – Bank of Canada Governor Tiff Macklem has expressed cautious optimism about the potential of artificial intelligence (AI), highlighting its ability to boost productivity and economic growth in the long run. However, he also cautioned that the rapid adoption of AI could have short-term inflationary consequences, leading to higher prices and increased labor market volatility.

In a speech delivered on Friday, Macklem pointed out that substantial investment in AI is driving up demand, as increased equity prices and hiring contribute to higher consumption. This, coupled with the massive computing power required by AI technologies, is leading to a surge in electricity demand. Unless these forces are balanced by a corresponding increase in productive capacity, the result could be a faster rate of inflation.

“AI could boost demand more than it adds to supply through faster productivity growth. And if that happens, AI adoption may add to inflationary pressures in the near term,” Macklem stated.

Despite these concerns, Macklem emphasized that the long-term impact of AI is likely to be positive, with productivity gains ultimately leading to higher wages and spending without pushing up inflation.

The speech also raised concerns about AI’s potential to exacerbate volatility in the economy. Macklem highlighted that companies using AI are more likely to adjust their prices frequently, which could make inflation more volatile.

While acknowledging that there is little evidence of AI displacing employment at this point, Macklem warned that the rapid adoption of AI will likely disrupt the labor market. He emphasized the need for workers to adapt to the changing demands of the workforce, as AI-related disruptions could lead to a loss of livelihoods that are difficult to replace.

The Bank of Canada has already lowered interest rates three times since June, but Macklem’s comments suggest that the central bank remains vigilant about potential inflationary pressures and may continue to adjust interest rates as needed.

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