IMF Economist Warns AI May not Lower Inflation
The International Monetary Fund’s new chief economist, Silvana Tenreyro, has cautioned that even if artificial intelligence boosts productivity, it may not necessarily lower inflation. This warning was included in research
At first glance, higher economic productivity—producing more output with the same inputs—might seem likely to lead to lower prices. Federal Reserve Chair Kevin Warsh has expressed hope that the rollout of AI would allow the U.S. economy to grow faster without triggering higher inflation.
However, Tenreyro, along with BoE economist Jenny Chan and doctoral researcher Ludovica Ambrosino, argued that the inflation impact of anticipated productivity gains is ambiguous. They noted that business investment and household spending can both move ahead of realized productivity gains, as many believe is happening now with investment in AI infrastructure.
If investment demand or spending in anticipation of future AI gains occurs before the economy actually sees the promised productivity improvement, it could lead to supply crunches, pushing up inflation and requiring higher interest rates. Prices of computer memory and graphics chips have surged over the past year due to data centre demand, raising the prices of phones, laptops, and other consumer electronics.
The research also indicated that the inflation impact of productivity gains depends on whether they are felt more in exported goods or domestically produced services. Gains in services were more likely to lower domestic inflation, while gains in exports tended to push up domestic wages and boost demand for supply-constrained services, raising inflation.
The article was published on the BoE’s Bank Underground blog, a forum for staff to share views that do not necessarily reflect the central bank’s official stance. Tenreyro, who served on the BoE’s Monetary Policy Committee from 2017 to 2023, contributed in her role as a professor at the London School of Economics.
Recommended posts
Free Data: Insights – United Kingdom
Instant access. No credit card needed.
