Bank of Canada Warns: AI Could Boost Short-Term Inflation

Bank of Canada: AI could boost inflationary pressures in short-term

"In the short run, AI could boost demand more than it adds to supply through faster productivity growth," Macklem said in Toronto at an AI conference. With the surge in AI adoption, central bankers, whose primary mandate is to keep stable and low inflation, have been mulling how to use the technology to better predict changes in consumer prices and employment.Bank of Canada Governor Tiff Macklem on Friday said adoption of artificial intelligence (AI) by businesses could add to price pressures in the short term by boosting demand, even though its full effects would not be visible any time soon. Macklem said strong investment in AI technologies was already boosting the economy and noted surging electricity demand as new data centers are built. "In the short run, AI could boost demand more than it adds to supply through faster productivity growth," Macklem said in Toronto at an AI conference. "If that happens, AI adoption may add to inflationary pressures in the near term," he said. With the surge in AI adoption, central bankers, whose primary mandate is to keep stable and low inflation, have been mulling how to use the technology to better predict changes in consumer prices and employment. Macklem said central bankers needed to better understand how AI would affect workers, consumers, the economy and inflation. When combined with a more shock-prone world, the effects of AI suggest inflation could be more volatile than it was in the 25 years before the pandemic, he said. The Bank for International Settlements (BIS), which works with central banks across the world, said in June that central banks should embrace AI's benefits but should not allow it to replace humans when it comes to setting interest rates. Macklem said there was no evidence labor was being displaced by AI at rates that would lead to declines in total employment, he said, but cautioned that its wide-ranging effects were tough to predict. Macklem said the BoC was already using AI to forecast inflation, track economic sentiment, verify data and improve efficiency, but it is in early stages of adoption. "When you enter a dark room, you don't go charging in. You cautiously feel your way around," Macklem said on how the BoC was seeking better information on how the technology worked its way through the economy. Canada last year launched a Voluntary Code of Conduct on the responsible development and management of advanced Generative AI Systems, which highlights measures that companies should apply when they are developing and managing generative artificial intelligence systems. The Bank of Canada, Governor Tiff Macklem said on Friday.

Bank of Canada: AI could boost inflationary pressures in short-term

"In the short run, AI could boost demand more than it adds to supply through faster productivity growth," Macklem said in Toronto at an AI conference. "If that happens, AI adoption may add to inflationary pressures in the near term," he said. With the surge in AI adoption, central bankers, whose primary mandate is to keep stable and low inflation, have been mulling how to use the technology to better predict changes in consumer prices and employment. Macklem said central bankers needed to better understand how AI would affect workers, consumers, the economy and inflation. When combined with a more shock-prone world, the effects of AI suggest inflation could be more volatile than it was in the 25 years before the pandemic, he said. The Bank for International Settlements (BIS), which works with central banks across the world, said in June that central banks should embrace AI's benefits but should not allow it to replace humans when it comes to setting interest rates. Macklem said there was no evidence labor was being displaced by AI at rates that would lead to declines in total employment, he said, but cautioned that its wide-ranging effects were tough to predict. Macklem said the BoC was already using AI to forecast inflation, track economic sentiment, verify data and improve efficiency, but it is in early stages of adoption. "When you enter a dark room, you don't go charging in. You cautiously feel your way around," Macklem said on how the BoC was seeking better information on how the technology worked its way through the economy. Canada last year launched a Voluntary Code of Conduct on the responsible development and management of advanced Generative AI Systems, which highlights measures that companies should apply when they are developing and managing generative artificial intelligence systems. The Bank of Canada, Governor Tiff Macklem said on Friday.

Bank of Canada: AI could boost inflationary pressures in short-term

OTTAWA, Sept 20 (Reuters) - Bank of Canada Governor Tiff Macklem on Friday said adoption of artificial intelligence (AI) by businesses could add to price pressures in the short term by boosting demand, even though its full effects would not be visible any time soon. Macklem said strong investment in AI technologies was already boosting the economy and noted surging electricity demand as new data centers are built. "In the short run, AI could boost demand more than it adds to supply through faster productivity growth," Macklem said in Toronto at an AI conference. "If that happens, AI adoption may add to inflationary pressures in the near term," he said. With the surge in AI adoption, central bankers, whose primary mandate is to keep stable and low inflation, have been mulling how to use the technology to better predict changes in consumer prices and employment. Macklem said central bankers needed to better understand how AI would affect workers, consumers, the economy and inflation. When combined with a more shock-prone world, the effects of AI suggest inflation could be more volatile than it was in the 25 years before the pandemic, he said. The Bank for International Settlements (BIS), which works with central banks across the world, said in June that central banks should embrace AI's benefits but should not allow it to replace humans when it comes to setting interest rates. Macklem said there was no evidence labor was being displaced by AI at rates that would lead to declines in total employment, he said, but cautioned that its wide-ranging effects were tough to predict. Macklem said the BoC was already using AI to forecast inflation, track economic sentiment, verify data and improve efficiency, but it is in early stages of adoption. "When you enter a dark room, you don't go charging in. You cautiously feel your way around," Macklem said on how the BoC was seeking better information on how the technology worked its way through the economy. Canada last year launched a Voluntary Code of Conduct on the responsible development and management of advanced Generative AI Systems, which highlights measures that companies should apply when they are developing and managing generative artificial intelligence systems. The Bank of Canada, Governor Tiff Macklem said on Friday.

Bank of Canada: AI could boost inflationary pressures in short-term

By Promit Mukherjee and David Ljunggren OTTAWA, Sept 20 (Reuters) - Bank of Canada Governor Tiff Macklem on Friday said adoption of artificial intelligence (AI) by businesses could add to price pressures in the short term by boosting demand, even though its full effects would not be visible any time soon. Macklem said strong investment in AI technologies was already boosting the economy and noted surging electricity demand as new data centers are built. Advertisement · Scroll to continue "In the short run, AI could boost demand more than it adds to supply through faster productivity growth," Macklem said in Toronto at an AI conference. "If that happens, AI adoption may add to inflationary pressures in the near term," he said. With the surge in AI adoption, central bankers, whose primary mandate is to keep stable and low inflation, have been mulling how to use the technology to better predict changes in consumer prices and employment. Advertisement · Scroll to continue Macklem said central bankers needed to better understand how AI would affect workers, consumers, the economy and inflation. When combined with a more shock-prone world, the effects of AI suggest inflation could be more volatile than it was in the 25 years before the pandemic, he said. The Bank for International Settlements (BIS), which works with central banks across the world, said in June that central banks should embrace AI's benefits but should not allow it to replace humans when it comes to setting interest rates. Macklem said there was no evidence labor was being displaced by AI at rates that would lead to declines in total employment, he said, but cautioned that its wide-ranging effects were tough to predict. Macklem said the BoC was already using AI to forecast inflation, track economic sentiment, verify data and improve efficiency, but it is in early stages of adoption. "When you enter a dark room, you don't go charging in. You cautiously feel your way around," Macklem said on how the BoC was seeking better information on how the technology worked its way through the economy. Canada last year launched a Voluntary Code of Conduct on the responsible development and management of advanced Generative AI Systems, which highlights measures that companies should apply when they are developing and managing generative artificial intelligence systems. The Bank of Canada, Governor Tiff Macklem said on Friday. (Reporting by Reuters Ottawa bureau) Keywords: CANADA CENBANK/ Our Standards: The Thomson Reuters Trust Principles., opens new tab

Bank of Canada Gov : AI Investments Could Add Short-Term Inflationary Pressure

OTTAWA--Investments in productivity-enhancing artificial intelligence are boosting demand in the economy, and that could put upward pressure on inflation in the short term, Bank of Canada Gov. Tiff Macklem said Friday. Macklem said wider AI adoption could prompt companies to change prices more frequently, leading to more volatile periods of inflation relative to the prepandemic period. Macklem was scheduled to deliver the prepared remarks to a Toronto audience Friday. The speech focused entirely on the impact of AI on the economy, and didn't address recent Canadian economic data such as inflation, the U.S. Federal Reserve's decision to cut its main interest rate by a half point, or whether the Bank of Canada is eyeing a similar deep cut next month. In the longer term, policymakers expect the adoption of AI to increase productivity, or output per hour worked, which would allow for higher wages and more spending without pushing up inflation, Macklem said. In the near term, "strong investment in AI technologies is boosting demand in the economy," Macklem said, citing the recent runup in stock markets and a hiring boom for workers with AI-related skills. Electricity demand is also surging, he said, with companies building data centers to accommodate AI's enormous computing requirements. "AI could boost demand more than it adds to supply through faster productivity growth," Macklem said. "And if that happens, AI adoption may add to inflationary pressures in the near term." Inflation in Canada returned in August to the Bank of Canada's 2% target for the first time since early 2021. Macklem added AI could lead to more frequent price changes by firms for their goods and services. He said there's already evidence that digitally-intensive firms change prices more frequently. "When combined with a more shock-prone world, this suggests inflation could be more volatile than it was in the 25 years before the pandemic," he said.

Macklem Warns AI May Push Prices Higher Through Demand Boost

(Bloomberg) -- Bank of Canada Governor Tiff Macklem warned that artificial intelligence technologies may add to inflationary pressures as well as price and labor volatility in the short run. In a Friday speech in Toronto, Macklem said strong investment in AI is boosting demand as rising equity prices and hiring add to consumption. Electricity demand is also "surging" because of the massive computing requirements of the technology. If those forces outweigh the expansion of productive capacity, the result may be faster price growth. "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," he said in prepared remarks. Still, Macklem said the productivity gains of artificial intelligence adoption will increase supply and potential growth in the long run, allowing workers' compensation and spending to rise with fewer price pressures. "In the long run, we can expect AI to boost productivity. Higher productivity allows for higher wages and more spending without pushing up inflation," he said. The speech made no reference to the near term outlook for interest rates in Canada. Yearly price pressures hit the central bank's 2% target in August, and the comments suggest the central bank remains focused on potential upside risk to inflation even as they're cutting interest rates. Officials have already lowered borrowing costs three times since June, bringing the overnight rate to 4.25%, and they've signaled more cuts to come. Markets are pricing about a 50% chance that policymakers will lower the benchmark overnight rate by 50 basis points at their next meeting on Oct. 23. Macklem's speech also warned that AI has the potential to add to volatility as it impacts the price-setting behavior of companies, given evidence that digitally intensive firms change their prices more often than those who aren't. Assuming no impact to firms' competition, "this means the Phillips curve might be steeper than previously thought," Macklem said, "suggesting inflation could be more volatile than it was in the 25 years before the pandemic," especially in a more "shock-prone world." The central bank governor said that there's little evidence that AI is displacing employment at this point -- and that digitalization and the commercialization of the technologies "have likely been net job creators in Canada." Still, the faster pace of adoption is also likely to disrupt the labor force, even while labor demand may be increased. "In past change cycles the technology was diffused over a prolonged period, so the labor force had time to adjust. But this time adoption may happen much faster, creating more disruption and a loss of livelihoods that will be difficult to replace," Macklem said.

Bank of Canada trying to figure out how AI might affect inflation, Macklem says

OTTAWA -- Bank of Canada governor Tiff Macklem says there is a lot of uncertainty around how artificial intelligence could affect the economy moving forward, including the labour market and price growth. In a speech in Toronto at the Economics of Artificial Intelligence Conference, the governor said Friday that the central bank is approaching the issue cautiously to get a better understanding of how AI could affect its job of keeping inflation low and stable. "Be wary of anyone who claims to know where AI will take us. There is too much uncertainty to be confident," Macklem said in prepared remarks. "We don't know how quickly AI will continue to advance. And we don't know the timing and extent of its economic and social impacts." The governor said AI has the potential of increasing labour productivity, which would raise living standards and grow the economy without boosting inflation. In the short-term, he said investment in AI is adding to demand and could be inflationary. However, Macklem also highlighted more pessimistic scenarios, where AI could destroy more jobs than it creates or lead to less competition rather than more. The governor called on academics and businesses to work together to shed more light on the potential effects of AI on the economy. "When you enter a dark room, you don't go charging in. You cautiously feel your way around. And you try to find the light switch. That is what we are doing. What we central bankers need is more light," he said. This report by The Canadian Press was first published Sept. 20, 2024.

Macklem Warns AI May Push Prices Higher Through Demand Boost

Bank of Canada Governor Tiff Macklem warned that artificial intelligence technologies may add to inflationary pressures as well as price and labor volatility in the short run. In a Friday speech in Toronto, Macklem said strong investment in AI is boosting demand as rising equity prices and hiring add to consumption. Electricity demand is also "surging" because of the massive computing requirements of the technology. If those forces outweigh the expansion of productive capacity, the result may be faster price growth.