Reserve Bank of Australia’s chief economist Sarah Hunter warns AI data centre boom will keep inflation high
The Reserve Bank’s chief economist has warned the construction of AI data centres is good news in Australia’s inflation fight.
The Reserve Bank’s chief economist Sarah Hunter is warning the construction of AI data centres will keep inflation high without the new technology later solving Australia’s productivity crisis.
Dr Hunter said the capital investment in this new energy intensive artificial intelligence infrastructure was likely to see these projects compete for scarce materials during a time of high price pressures.
“So, what does this mean for inflation? The effect is likely to vary over time. In the near term, the positive shock to aggregate demand set against the economy’s current supply capacity will put some upward pressure on inflation,” told the UBS Australasia conference in Sydney on Monday.
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By continuing you agree to our Terms and Privacy Policy.“Surging global AI-related investment has contributed to capacity pressures in supply chains for AI-enabling products such as semiconductors. These upstream cost pressures are passing through to the prices of some downstream goods in advanced economies.”
The building of these new data centres is also likely to see more competition for construction workers, with the labour market still considered to be in full employment where wage increases can still add to inflation.
“Some liaison contacts are reporting that data centre construction is adding to demand for some already-stretched construction skilled trades,” Dr Hunter said.
The RBA’s assistant governor in charge of economic research also questioned whether AI would help solve Australia’s long run of weak productivity.
“This transition doesn’t mean AI will continually put downward pressure on inflation,” she said.
“As I previously outlined, over time stronger demand is likely to accompany the increase in the economy’s productive capacity. Consistent with previous general-purpose technologies, AI’s long-run effect on inflation is likely to be broadly neutral.”
This would be after the construction of AI data centres was no longer contributing to Australia’s inflation crisis during a time of weak economic growth.
“As a result, the initial inflationary pressures from AI investment are likely to dissipate,” Dr Hunter said.
The observations were made a day after developers Stockland and John Boyd Properties scrapped plans for a data centre at Arncliffe in Sydney’s south, and weeks after the Goodman Group cancelled plans for a data centre at Lane Cove on Sydney’s lower north shore, with community protests forcing both decisions.
More to come
