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.

"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.

Keywords: CANADA CENBANK/

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https://www.reuters.com/markets/bank-canada-ai-could-boost-inflationary-pressures-short-term-2024-09-20/