AI Boom Exacerbates Inflation Worries for Reserve Bank

The Reserve Bank of Australia (RBA) is facing challenges in controlling inflation due to the surge in artificial intelligence investment and sluggish productivity growth. According to RBA assistant governor Chris Kent, the AI boom has led to a substantial increase in data centre construction, which has contributed to higher aggregate demand. This, in turn, means that policy rates need to be higher than otherwise to slow down the economy.

The IT equipment investment in Australia saw a 196% increase in the March quarter, driven primarily by data centre build-out. Westpac estimates that the data centre investment pipeline could reach $150 billion to $155 billion by the end of the decade, but much of this spend would not directly boost the local economy.

Dr. Kent also expressed concerns about productivity growth, which fell 0.5% in the 2025/26 financial year and is expected to recover to 0.7% by 2028. However, he concedes that this assumption may be overoptimistic.