AI-Driven Gains Will Shape Inflation, ECB's Panetta Warns

Central banks need to understand who benefits from artificial intelligence-driven gains as their distribution will shape aggregate demand and inflation, European Central Bank Governing Council member Fabio Panetta said. Speaking at an event hosted by the National Bank of Ukraine, Panetta noted that AI is set to transform productivity and growth, labour and financial markets, and payment systems.

However, if AI mainly creates new tasks and raises expected labour income, demand could increase before AI's full productivity benefits materialise, prolonging inflationary pressures. Panetta pointed out that this scenario would lead to weaker consumption, causing the disinflationary effects of AI to emerge sooner if automation dominates.

Credibility is an essential asset for every central bank, but how it is built and preserved depends on the nature of the challenges faced, according to Panetta. He added that understanding changes underway is increasingly essential to central bank credibility, with central banks unable to remain on the sidelines.