Digitalization: Prices of Goods and Services
This paper outlines and assesses the various channels through which digitalization can affect prices of goods and services.
Structural challenges
The world is constantly changing. Factors like trade conflicts, technological advances and climate change can challenge the very foundations of the economy. We study these developments to keep our economy strong and resilient.
In an increasingly interconnected and dynamic global economy, Canada faces various structural challenges that require careful analysis. These challenges are influenced not only by external factors such as geopolitics, global trade dynamics and technological advancements but also by internal factors, including demographic shifts and environmental sustainability. Understanding and addressing these structural challenges is crucial for keeping inflation low and stable, fostering growth and ensuring the economic well-being of Canadians.
Among the issues we are studying:
- the structural factors behind Canada’s slow growth in productivity
- how immigration and population aging impact inflation through wages, productivity and housing demand
- how artificial intelligence will transform the demand for skills and affect productivity
- how tariffs impact the economy and inflation in Canada
- the impact to Canada if the US dollar ceases to be the global currency used for trade and finance
Productivity
Productivity growth is a main factor behind economic prosperity. Yet, Canada has seen slow growth in productivity for a long time. Understanding both the underlying factors behind productivity and its likely evolution are important for identifying inflationary pressures.
The four Ds: deglobalization, demographic shifts, digitalization and decarbonization
The four Ds are reshaping the Canadian economy. They may lead to more persistent pressures on inflation and cause inflation to be more volatile. For these reasons and more, examining these four structural trends is important.
- Deglobalization is led by shifts in trade alliances and the rearranging of supply chains. It affects how Canada interacts with the global economy.
- Demographic shifts, including population aging and immigration, influence the labour market and the demand for housing.
- Digitalization affects productivity and the demand for skills, particularly as businesses use artificial intelligence tools more widely.
- Decarbonization is essential to become environmentally sustainable but creates opportunities and challenges for economic growth.
The international monetary and financial system
The international monetary and financial system is the set of rules, institutions and mechanisms that govern exchange rates, cross-border flows of capital and the use of international currencies to facilitate the exchange of goods and services between countries. This system is facing heightened uncertainty and potential structural change. Geopolitical tensions, shifts in trade policies and the evolving role of the US dollar as the dominant reserve currency are key factors influencing the system. Understanding the implications of these changes for Canada is critical.
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Disclaimer
Bank of Canada staff produce research and analysis to support the work of the Bank and to advance knowledge in the fields of economics and finance. The research is non-partisan and evidence based. All research is produced independently from the Bank’s Governing Council. The views expressed in each paper or article are solely those of the authors and may differ from official Bank of Canada views.