IMF warns AI productivity gains may not reduce inflation

Silvana Tenreyro, the new chief economist of the International Monetary Fund (IMF), warns that productivity gains driven by artificial intelligence may not necessarily lead to lower inflation. In research published on the Bank of England's blog, Tenreyro and co-authors Jenny Chan and Ludovica Ambrosino argue that the relationship between AI-driven productivity and price stability is complex.

While increased productivity typically lowers costs and prices, the researchers suggest that corporate investments and household spending could outpace actual productivity improvements. This is particularly evident in the current massive investments in AI infrastructure. If demand for these technologies rises before the promised economic benefits materialize, it could create supply-side bottlenecks and drive inflation higher. Such a scenario might force central banks to maintain higher interest rates to control prices.

A practical example cited is the surge in demand for memory chips and graphics processors for data centers, which has contributed to rising prices for consumer electronics like laptops and smartphones.