BOJ Sounds Alarm Over AI-Driven Inflation Risk
The Bank of Japan (BOJ) has warned that the global boom in artificial intelligence (AI) demand poses a lasting inflation risk, which could boost the case for a near-term interest rate hike. According to the BOJ's quarterly outlook report, AI-related demand is likely to exert upward pressure on prices in the short term, outweighing productivity gains.
The report notes that producer prices have risen globally due to a combination of factors, including the oil price rise caused by the Middle East conflict and a 'positive global demand shock' for AI-related goods. The BOJ estimates that AI-related demand can exert a lasting upward influence on consumer inflation excluding fresh food and fuel.
In contrast, the report suggests that Japanese households would benefit from higher interest rates due to their substantial deposits exceeding outstanding borrowing. This could mitigate some of the impact of rate hikes on consumption.