Canada's shift to net-zero emissions likely to drive higher inflation, economists say

Solar-powered homes, electric tractors and hydrogen-cell trucking fleets: Canada has big net-zero ambitions, but getting there will require trillions of dollars in investment and will likely fuel hotter inflation for years to come, economists say.

Over the last decade, Canadian business investment has sagged, running well below historic levels and leading to excess supply in the economy, which pushed down inflation and allowed for structurally lower interest rates.

But that trend is set to reverse, said David Dodge, an economist and former Bank of Canada governor, as spending ramps up during the so-called green transition.

"We have major investment efforts to deal with climate change and to convert everywhere from the use of fossil fuel," Dodge said in an interview with Reuters.

This spending will lead to a "tendency for prices to have some upward pressure rather than some downward pressure" starting as soon as next year, said Dodge, who headed Canada's central bank from 2001 to 2008.