Key facts
- Australia's AI investment boom is expected to increase inflation in the short term.
- Jonathan Kearns, a former RBA official, believes AI productivity benefits will take time to emerge.
- Around three-quarters of data center spending in Australia involves imported equipment, which will partially offset inflationary effects.
- Domestic spending on AI will still contribute to aggregate demand.
- Kearns expects one more interest rate hike from the RBA this year.
- The burden of tighter monetary policy is likely to fall more heavily on households and non-AI business investment.
Australia's AI investment boom is likely to contribute to inflation in the near term, as the productivity benefits of the new technology may take longer to materialize, according to Jonathan Kearns, a former official at the Reserve Bank of Australia (RBA).
Kearns, now chief economist at Challenger, told the Reuters Global Markets Forum that while the use of imported equipment for data centers, which he estimates accounts for about three-quarters of such spending in Australia, will cushion some of the inflationary impact, domestic spending will still add to aggregate demand.