How high productivity helps fight inflation

Why productivity growth is important right now

Higher productivity means the economy produces more value using the same amount of work. This increase in production leads to an improvement in our standard of living. An ageing population, increasing trade tensions, geopolitical instability and the economic impact of climate change could all lead to an increase in inflation. However, higher productivity can protect us from the worst effects because:

• When workers produce more per hour of work, companies are more profitable and can absorb higher costs, including higher wages, without having to raise their prices.
• More efficient production of goods and services leads to greater supply, which helps keep prices and inflation lower.
• More productive companies can withstand the economic disruptions that can be caused by events such as geopolitical conflicts and extreme weather conditions.

Canada has all the ingredients to increase productivity. Our workforce is well-educated, our universities have a strong research culture, and our trade agreements give Canadian companies access to international markets. All of this is an advantage, but we must also:

• invest in equipment and technology
• train and educate employees to provide them with future-proof skills
• ensure that Canada's business and regulatory environment promotes competition, which helps keep prices low

The Bank of Canada can also play a role in boosting productivity. By keeping inflation around 2%, we support the economic stability that businesses need to invest in themselves. Low, stable and predictable inflation creates the best investment climate because it allows businesses to plan for the future with confidence.