Bank of Canada on AI Adoption and Economic Impact

OTTAWA, Sept 20 (Reuters) – Bank of Canada Governor Tiff Macklem discussed the impact of artificial intelligence (AI) on businesses and the economy during an AI conference in Toronto.

Macklem noted that the adoption of AI technologies could initially increase demand more than supply, leading to potential inflationary pressures in the short term. He highlighted the rise in electricity demand due to new data centers being constructed as a result of strong AI investment.

He stated, “In the short run, AI could boost demand more than it adds to supply through faster productivity growth,” adding that this could create near-term inflationary pressures.

Central bankers are contemplating how to utilize AI for improved predictions regarding consumer prices and employment, given the technology’s ability to influence various economic factors. Macklem emphasized the need for a better understanding of how AI would affect workers, consumers, and overall inflation.

He cautioned that, in conjunction with a more unpredictable global environment, the effects of AI might lead to more volatile inflation compared to the previous 25 years before the pandemic.

The Bank for International Settlements (BIS) advises that while central banks should harness the advantages of AI, they must retain human oversight in setting interest rates.

Macklem reassured that there is currently no significant evidence of AI displacing labor at a pace that would reduce overall employment levels, although he acknowledged the uncertainty surrounding AI’s broader implications.

The Bank of Canada is already employing AI to forecast inflation, assess economic sentiment, verify data, and enhance operational efficiency, although they are in the early stages of this technology’s adoption.

Macklem metaphorically described the Bank’s approach to AI integration, stating, “When you enter a dark room, you don’t go charging in. You cautiously feel your way around.”

In addition, Canada implemented a Voluntary Code of Conduct last year focused on the responsible development and management of advanced Generative AI Systems, outlining recommended practices for companies in the sector.

The Bank of Canada, Governor Tiff Macklem said on Friday.