AI Productivity Gains May Not Tame Inflation, IMF Economist Warns

International Monetary Fund (IMF) chief economist Silvana Tenreyro has warned that artificial intelligence (AI) productivity gains may not curb inflation, contradicting Federal Reserve Chairman Kevin Warsh's hopes. In research published by Bank of England staff, the economists pointed out that investment in AI infrastructure often leads to increased demand before actual productivity improvements are realized.

This phenomenon can result in supply crunches and higher prices, particularly for goods like computer memory and graphics chips, which have seen significant price hikes over the past year. Tenreyro's analysis suggests that inflation from productivity gains depends on whether they benefit exported goods or domestically produced services.

The research indicates that productivity gains in services tend to lower domestic inflation, whereas those in exports can lead to higher domestic wages and boost demand for supply-constrained services, raising prices. The study was published on the Bank of England's Underground blog, which features views from staff members that may not reflect the central bank's official stance.