RBA Grapples with AI-Driven Inflation Pressures and Productivity Slump

The Reserve Bank of Australia (RBA) is facing new challenges in its efforts to control inflation, according to top central bank officials. The surge in artificial intelligence investment and sluggish productivity growth are forcing the RBA to keep interest rates higher.

RBA assistant governor Chris Kent said that AI-related infrastructure investments have contributed to growth in aggregate demand. However, this means that policy rates need to be higher than otherwise, at least in the short run.

The data centre build-out has driven a 196% increase in IT equipment investment in the March quarter. Westpac estimates that the data centre investment pipeline could reach $150 billion to $155 billion by the end of the decade.

Kent also expressed concerns about Australia's productivity growth rate, which fell 0.5% in the 2025/26 financial year and may not recover as expected.