Bank of Canada Warns AI Could Trigger Inflationary Pressures

Bank of Canada Governor Tiff Macklem has expressed concerns about the impact of artificial intelligence (AI) on inflation and financial stability. He stated that AI could lead to higher inflationary pressures in the short term and affect how businesses set prices. Macklem emphasized the need for central banks to closely monitor the effects of AI on inflation, both through overall demand and supply and directly through price-setting behavior. Additionally, he warned that AI adoption could result in financial stability issues, as operational risks may become concentrated in a few third-party service providers. Displaced workers could also face challenges as AI reduces non-automated tasks, potentially leading to insufficient job opportunities. While AI can replace workers in lower-productivity jobs, Macklem acknowledged the importance of understanding and shaping the labor market impacts of AI. He further highlighted the Bank of Canada’s use of AI for various purposes, such as forecasting inflation and economic activity, tracking sentiment in key economic sectors, and improving efficiency and de-risking operations. Despite the uncertainties surrounding AI, Macklem believes that its recent advancements have the potential to transform economies globally.