London – In a paper released on the Bank of England’s Bank Underground blog, International Monetary Fund chief economist Silvana Tenreyro warned that the anticipated productivity surge from artificial intelligence (AI) may not translate into lower inflation. The analysis, co‑authored with Bank of England economist Jenny Chan and doctoral researcher Ludovica Ambrosino, highlights how premature spending on AI infrastructure can create supply bottlenecks that push prices higher.
Investment ahead of real gains
Tenreyro notes that businesses and households often increase spending before the promised productivity improvements materialize. “Business investment and household spending (can) both move ahead of realised productivity gains, as many argue is happening now with investment in AI infrastructure,” the authors wrote. When demand for AI‑driven tools spikes before supply catches up, the resulting shortages can raise costs for components such as computer memory and graphics chips, which have already surged in price over the past year.
Impact on different sectors
The study distinguishes between productivity gains in exported goods versus domestically produced services. Gains in services are more likely to ease domestic inflation, while gains in exports can lift wages and increase demand for supply‑constrained services, potentially feeding higher price growth. This nuanced view suggests that the inflation outcome of AI‑driven productivity will depend on where the gains are realized.
Policy implications
Federal Reserve Chair Kevin Warsh has expressed optimism that AI could help the U.S. economy grow faster without stoking inflation. Tenreyro’s findings, however, caution policymakers that the timing and composition of AI investment matter. If central banks see rising price pressures from supply crunches, they may be forced to keep interest rates higher for longer.
Broader context
The research appears amid ongoing debates about how emerging technologies will reshape the global economy. While AI promises to automate routine tasks and enhance efficiency, the path to lower consumer prices is not guaranteed. Tenreyro, who served on the Bank of England’s Monetary Policy Committee from 2017 to 2023, contributed to the paper in her capacity as a professor at the London School of Economics.
Readers should watch for further analysis from both the IMF and national central banks as they assess the real‑world impact of AI on growth and price stability.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
