The average family of four in Canada is expected to spend about $17,500 on groceries this year, according to Dalhousie University’s Agri-Food Analytics Lab.Carlos Osorio/Reuters
Month after month, Canadians are told that inflation is under control.
Last week’s Consumer Price Index report showed inflation in January easing close to the Bank of Canada’s target of 2 per cent. Statistics Canada says for all of 2025, prices rose by just 2.1 per cent – right about where it was in the prepandemic years, when few of us paid attention to inflation at all.
These numbers are completely out of whack with the average consumer’s reality. Every time they set foot in a grocery store, gas up their car or pay their rent, the sticker shock sets in anew.
If restoring price stability cannot ease the cost-of-living pressures weighing so heavily on the national psyche, what can? There is but one escape route: course-correcting the country’s miserable record on productivity, and artificial intelligence can help get us there.
“Deep down, Canada’s affordability problem is really a productivity problem,” Bank of Canada deputy governor Nicolas Vincent said in speech in November. “To make things more affordable, we need to raise our income. And the way to grow our income is by increasing productivity.”
As it stands, every barometer of the Canadian consumer base shows sentiment in the dumps, comparable with past recessions. The strain of high costs courses through all facets of daily life, with two-thirds of Canadians saying today’s cost of living is the worst they can ever remember it being, according to a recent Abacus Data survey.
Yes, inflation has been subdued. The numbers aren’t fake. But that does nothing to cushion the blow from what was the worst inflationary episode since the 1980s.
When inflation spiralled out of control in 2021, prices permanently levelled up in a way that Canadians are still trying to wrap their heads – and their budgets – around, especially when it comes to essentials.
Compared to a decade ago, food, gas and shelter costs have each jumped by roughly 40 per cent – nearly double the rise in overall prices that a 2-per-cent annual inflation rate would have delivered over that time.
This wouldn’t be such a huge issue had productivity growth merely kept pace with the G7 average. In that case, the Canadian economy would be about 9 per cent larger than it is today, Mr. Vincent pointed out. That translates to an additional $7,000 per person, or $18,000 per household.
Now consider that the average family of four in Canada is expected to spend about $17,500 on groceries this year, according to Dalhousie University’s Agri-Food Analytics Lab.
Of course, it’s hard to get riled up about productivity when you’re struggling to pay your bills.
But economists will tell you productivity is the reason we aren’t still dwelling in caves. An economy that fails to improve its productivity risks stagnating wages, declining competitiveness and lower standards of living. Sound familiar?
“Productivity isn’t everything, but, in the long run, it is almost everything,” economist Paul Krugman famously wrote in the 1990s.
There are two basic ways to make an economy more productive. Increase the amount of capital per worker. Or make the process more efficient through technology and innovation.
Sadly, Canada has been doing very little of either for many years now. Canadian businesses are investing 20 per cent less in machinery and equipment per worker than they did 10 years ago, according to OECD data.
They are also trailing badly on research and development. At around 1 per cent of gross domestic product, Canada’s private sector investment in R&D is about half the OECD average.
Hardly surprising then that Canadian productivity growth has been trending downward for years, decades even. The one big reversal of that trajectory happened in the late 1990s and early 2000s with the widespread adoption of the internet.
There are hopes that AI could deliver a similar bump. The range of potential outcomes is enormous, but most estimates suggest a 0.5-per-cent to 1.5-per-cent annual boost over the next decade.
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Even the low end of that range is “substantial, given that Canada struggles to even get 1-per-cent productivity growth per year,” said Doug Porter, Bank of Montreal chief economist. “That would be a very nice addition.”
There are also some early signs of improvements in the investment climate in Canada. Foreign direct investment in Canada had its strongest year in nearly two decades in 2025, with $96.8-billion coming into the country, more than 40 per cent from non-U.S. sources.
The fourth quarter also saw a rebound in investment in machinery and equipment, which was up 12 per cent year-over-year.
Canada needs much, much more of the same if it is to reverse course on productivity. This is the key to boosting wages without adding to inflation.
Purchasing power would rise. Standards of living would improve.
And just maybe, you’ll eventually feel like you don’t need to take out a second mortgage to afford a couple bags of groceries.