The Bank of Japan (BOJ) has warned that global demand for artificial intelligence (AI) could lead to a lasting upward pressure on Japan’s inflation. In its quarterly outlook report, the BOJ stated that while AI should boost productivity and put downward pressure on prices in the medium to long term, the short-term effects of an AI-driven investment boom are likely to outweigh productivity gains.

Global Demand and Inflation

The BOJ noted that producer prices have risen across the world due to the oil price rise caused by the Middle East conflict and a ‘positive global demand shock’ for AI-related goods. The report also stated that the spill-over effects of AI demand will remain in place for some time, which, coupled with the lingering boost to import costs from yen declines, could keep persistent upward pressure on domestic inflation.

The BOJ raised interest rates to a 31-year high of 1% in June and has signalled its readiness to keep pushing up borrowing costs to combat mounting price pressures from a weak yen and the energy shock caused by the Iran war. The bank will scrutinise how the spike in producer prices could spread to consumer inflation and the impact of its past rate hikes on the economy when timing the next rate hike.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.