BOJ Sounds Alarm Over AI-Driven Inflationary Pressures
The Bank of Japan (BOJ) has warned that global demand for Artificial Intelligence (AI) could lead to sticky inflationary effects on the country's economy. According to a quarterly outlook report, AI-related demand is likely to exert lasting upward pressure on prices in the short term, outweighing productivity gains.
The BOJ noted that producer prices have risen globally due to the oil price increase caused by the Middle East conflict and a 'positive global demand shock' for AI-related goods. The spill-over effects of AI demand will remain in place for some time, coupled with the lingering boost to import costs from yen declines, which could keep persistent upward pressure on domestic inflation.
The report also estimated that AI-related demand can exert a sticky and lasting upward influence on consumer inflation excluding fresh food and fuel. Despite this, the BOJ believes that Japanese households will benefit from higher interest rates due to their substantial deposits exceeding outstanding borrowing.