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LONDON - The Bank for International Settlements (BIS) has warned that the rapid expansion of artificial intelligence is making it harder for central banks to interpret inflation signals and calibrate interest rates. In a bulletin on the economic implications of AI, the Switzerland-based central bank umbrella group said the technology is simultaneously boosting demand through heavy, often debt-financed investment in data centres, chips and digital infrastructure, while over time expanding supply by raising productivity and economic capacity. The BIS said this dual impact can blur standard cyclical indicators, as strong AI-driven growth may resemble an overheating economy even when it reflects longer-term gains in productive potential, while future productivity improvements could also mask underlying demand pressures and distort readings of inflation trends. The BIS highlighted that these overlapping forces risk complicating central banks’ assessment of underlying economic conditions and could increase the chances of policy miscalibration if they misread the source of growth or inflation. It noted that AI-related optimism is already fuelling gains in equity markets and creating wealth effects that support consumption, while also raising the danger of asset price bubbles. The bulletin said the impact of AI is likely to be uneven across countries and labour markets, with economies that supply semiconductors, computing infrastructure or AI-related services better positioned to benefit, and others at risk of lagging. This divergence may lead to differing growth and inflation paths across jurisdictions, adding to the complexity of setting monetary policy globally.

By Adyan K. | JQJO News