AI Productivity Gains May Not Tame Inflation, IMF Warns
The International Monetary Fund's new chief economist, Silvana Tenreyro, has warned that artificial intelligence (AI) productivity gains may not necessarily curb inflation. In research co-written with Bank of England (BoE) economists Jenny Chan and Ludovica Ambrosino, Tenreyro argues that the relationship between AI-driven productivity increases and inflation is more complex than initially thought.
The researchers point out that business investment and household spending can sometimes move ahead of realized productivity gains, which can lead to supply crunches and higher prices. This phenomenon has already been observed in the surge of computer memory and graphics chips due to demand from data centers, causing price hikes for consumer electronics such as phones and laptops.
The study also suggests that the inflation impact of productivity gains depends on whether they are felt more in exported goods or domestically produced services. In particular, productivity gains in services tend to lower domestic inflation, while those in exports can push up domestic wages and boost demand for supply-constrained services, raising inflation.