Key facts
- IMF Chief Economist Silvana Tenreyro warned that anticipated productivity gains from artificial intelligence may not lower inflation.
- Research suggests that if spending in anticipation of AI gains outpaces realized productivity, it could lead to supply crunches and push up inflation.
- Prices for computer memory and graphics chips have risen due to data center demand, increasing costs for electronics.
- Productivity gains in services are more likely to lower domestic inflation, while export gains may raise inflation.
New research published by Bank of England staff suggests that anticipated productivity gains from artificial intelligence may not necessarily lead to lower inflation. Silvana Tenreyro, the IMF's new chief economist, co-authored the study, warning that increased business investment and household spending in anticipation of AI-driven gains could outpace realized productivity improvements. This scenario, the researchers argue, could lead to supply crunches and push inflation higher, potentially requiring increased interest rates.
The analysis highlights that prices for components like computer memory and graphics chips have already surged due to demand from data centers, contributing to higher costs for consumer electronics. The research also posits that the inflationary impact of productivity gains depends on whether they primarily affect exported goods or domestically produced services. Gains in services are more likely to reduce domestic inflation, whereas gains in exports could increase domestic wages and demand, thereby raising inflation.
This contrasts with earlier research from the Federal Reserve Bank of Boston, which indicated that robust U.S. productivity growth had helped offset the inflationary effects of President Donald Trump's trade tariffs. That paper suggested that industries facing higher costs from tariffs also saw greater labor productivity growth, allowing them to absorb some of these expenses. The Boston Fed research indicated that tariffs and productivity combined added an estimated 0.5 percentage point to the core personal consumption expenditures price index, suggesting productivity gains significantly offset price increases induced by tariffs.