BIS says AI boom risks clouding central banks' inflation signals
· CNA · JoinRead a summary of this article on FAST.
Get bite-sized news via a new
cards interface. Give it a try.
Click here to return to FAST Tap here to return to FAST
FAST
LONDON, July 28 : The artificial intelligence boom could make it significantly harder for central banks to judge the state of the economy and set interest rates, as the technology simultaneously boosts both demand and supply, the Bank for International Settlements said on Tuesday.
In a bulletin on the economic implications of AI, the central bank umbrella group said policymakers face an unusually difficult task as AI generates powerful investment, trade and financial-market effects long before any broad-based productivity gains are fully visible.
The current surge in AI spending, increasingly financed by debt, is already driving up economic activity and trade and fuelling gains in equity markets — all of which can add to near-term inflationary pressures.
At the same time, AI could eventually increase productivity and capacity, expanding supply and helping contain inflation. The challenge for policymakers is that the size, timing and distribution of those gains remain highly uncertain.
CNA Games
Guess Word
Crack the word, one row at a time
Buzzword
Create words using the given letters
Mini Sudoku
Tiny puzzle, mighty brain teaser
Mini Crossword
Small grid, big challenge
Word Search
Spot as many words as you can
Show More
Show Less
"By simultaneously affecting demand and supply, AI blurs cyclical signals," the BIS said, warning that this could complicate central banks' assessment of underlying economic conditions and the calibration of monetary policy.
One immediate risk is misreading strong growth driven by AI investment. Robust spending on data centres, chips and digital infrastructure may resemble an overheating economy, even if part of the expansion reflects longer-term increases in productive potential.
Conversely, productivity gains could mask underlying demand pressures, making inflation trends harder to interpret.
The BIS also highlighted the uneven impact of AI across countries and for labour markets. Economies that are major suppliers of semiconductors, computing infrastructure or AI-related services may enjoy stronger growth, while others could lag behind.
Such divergence may lead to differing inflation and growth trajectories, increasing the complexity of monetary policy across jurisdictions.
Financial-market effects present another challenge. AI-related optimism has driven rapid equity market gains, creating wealth effects that can support consumption and demand, but also raised the risk of asset price bubbles.
The BIS stopped short of making policy recommendations but said central banks would need to disentangle temporary investment booms from lasting productivity improvements to avoid the risk of "policy miscalibration".
Newsletter
Week in Review
Subscribe to our Chief Editor’s Week in Review
Our chief editor shares analysis and picks of the week's biggest news every Saturday.
Sign up for our newsletters
Get our pick of top stories and thought-provoking articles in your inbox
Get the CNA app
Stay updated with notifications for breaking news and our best stories
Get WhatsApp alerts
Join our channel for the top reads for the day on your preferred chat app