RBA warns AI risks add to Australia inflation and financial stability concerns
Australia's central bank is signalling that artificial intelligence is not yet delivering a meaningful productivity lift or broad job losses, even as investment tied to the technology adds to economic pressures. The assessment comes as the Reserve Bank of Australia keeps interest rates at an 18-year high after five increases this year, with data centre spending contributing to demand in a supply-constrained economy.
Highlights
- RBA's Sarah Hunter says AI is initially adding to Australian inflation by lifting demand, with later productivity gains expected to ease price pressures.
- A surge in domestic data centre investment has contributed to inflation, prompting the RBA to raise interest rates five times this year to 4.85%, an 18-year high.
- Hunter warns that AI-driven investment could amplify financial stability risks, with markets vulnerable to sharp asset repricing if AI returns disappoint.
Hunter outlines AI effects on inflation and jobs
As reported by Reuters, Reserve Bank of Australia Assistant Governor Sarah Hunter says the impact of artificial intelligence on inflation is likely to shift over time, first lifting demand and adding to price pressures before supply expands to ease current constraints.Speaking at a UBS conference in Sydney, Hunter says growing data centre capacity and related sectors should help reduce bottlenecks over time. She says that if AI delivers broader productivity gains, economies will be able to produce more with the same inputs, which would help dissipate the initial inflationary pressures linked to AI investment.
Hunter also says there is limited evidence so far that AI has materially lifted productivity or caused large effects on employment. Still, she points to tentative signs of adjustment, including weaker job advertising and employment outcomes in occupations more exposed to AI, alongside stronger growth in areas where the technology has less impact, particularly for younger workers.
Data centre investment adds to policy and market risks
A boom in domestic data centre investment is adding to demand pressures in the Australian economy and is one reason the RBA has raised interest rates five times this year, taking them to 4.85%, the highest level in 18 years, as it fights inflation.Hunter also warns that AI could increase risks to financial stability. She says asset prices could face sharp repricing or even disorderly adjustments if returns on AI investment fall short of expectations, adding a new layer of risk for markets and policymakers.
Our earlier article on the U.S. AI data center boom highlighted that many planned projects are being delayed, scaled back, or deemed unrealistic as funding costs rise. We also noted how construction overruns, weaker investor sentiment, and power-grid constraints could slow the buildout of computing capacity and pressure returns, even as demand for AI remains strong.
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