Data Centre Boom Triggers Concerns Over Inflation and Interest Rates

Australia's booming data centre market is causing concerns about demand outpacing supply capacity, potentially leading to higher inflation and interest rates. According to James McIntyre at Bloomberg Economics (BE), major data centre developments are drawing skilled trades away from other sectors like renewable energy, infrastructure projects, and housing. This surge in investment could push capital expenditure above 2% of GDP by 2026-27.

McIntyre warned that the boom is 'crowding out activity elsewhere', particularly in non-residential construction. The Reserve Bank of Australia may be forced to raise interest rates again when it meets in three weeks' time, following stronger inflation and GDP data. Ivan Colhoun, chief economist at CreditorWatch Pty Ltd, echoed some concerns about the data centre boom's impact on materials prices, labour demand, and wages.

However, McIntyre pointed out that there will be a productivity payoff from this investment in the long run. He noted that emerging technologies like drones and remotely operated heavy machinery could displace physical roles in Australia's capital-intensive mining and agricultural sectors.