Artificial intelligence (AI) could fuel inflation not only by pushing up the cost of semiconductors and technology hardware, but also by making consumers wealthier and more willing to spend, International Monetary Fund (IMF) Chief Economist Pierre-Olivier Gourinchas told Bloomberg, warning that AI is creating new inflationary pressures through both supply and demand channels.The AI investment boom is “generating tremendous valuations” for companies in US stock markets and countries such as South Korea, creating a wealth effect that could add to price pressures, Gourinchas said in an interview with Bloomberg News.Booming technology stocks are swelling retirement accounts and investment portfolios, leaving consumers feeling richer and more willing to spend on holidays, homes and other big-ticket purchases.“These demand pressures, they generate inflation,” Gourinchas said.
‘Different channels from the AI component’
According to Gourinchas, AI is contributing to inflation through multiple channels.“There are different channels from the AI component,” he said. “One very narrowly through the supply chain bottlenecks, and one through the demand side. Both of them are going the same direction.”The demand-side impact comes on top of supply constraints already being driven by AI investment.
AI boom pushing up technology costs
The wealth effect is adding to inflationary pressures already emerging from AI-driven demand for chips and computing infrastructure.Apple this week raised prices for a range of devices, citing soaring memory and storage costs triggered by demand from AI data centres. Microsoft also announced another round of price increases for Xbox consoles.
Inflation worries
The inflation debate has come full circle for Gourinchas, who is set to leave the IMF next week after four years to return to the University of California, Berkeley.He took over the IMF’s research division in early 2022, shortly before Russia’s invasion of Ukraine triggered one of the biggest global inflation shocks in decades through energy and supply-chain disruptions.A key question now, he said, is whether the latest price increases will become embedded in consumer inflation expectations.“The memory is fresh,” Gourinchas said. “Everyone remembers.”
Energy, debt also remain key risks
Beyond AI, Gourinchas said his two biggest concerns for the global economy remain uncertainty over energy supplies because of the Iran conflict and deteriorating fiscal positions in many countries.“The appetite for raising revenues is close to zero in many places,” he said. “So how do you solve that fiscal equation?”
