The Bank for International Settlements has cautioned that the wave of investment in artificial intelligence is complicating central banks' ability to assess inflationary pressures and to calibrate interest-rate policy.
In a bulletin on the economic implications of AI released on Tuesday, the central bank umbrella group said the technology is creating powerful investment, trade and financial-market effects that are visible well before broad-based productivity improvements become apparent. Those near-term effects, the BIS said, can push up economic activity and trade, and underwrite rises in equity markets.
Much of the current AI spending is being financed with debt, the BIS noted, and that financing pattern is contributing to stronger demand today. Such activity can add to short-term inflationary pressures as it supports consumption, investment and asset prices.
At the same time, the BIS reiterated that AI could ultimately raise productivity and expand productive capacity, increasing supply and helping to restrain inflation over a longer horizon. The difficulty for policymakers, the bulletin stresses, is that the magnitude, timing and distribution of those productivity gains are highly uncertain.
"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 the BIS highlighted is that robust growth driven by AI investment may be misread as a classic overheating cycle. Large outlays on data centres, semiconductor capacity, and other elements of digital infrastructure can resemble demand-driven expansion, even when part of that spending is unlocking longer-term productive potential.
Conversely, if AI delivers productivity gains early in some areas, those improvements could mask persistent demand pressures, making inflation trends harder to interpret for policymakers.
The BIS also emphasised the uneven geographic and labour-market effects of AI. Economies that are major suppliers of semiconductors, computing infrastructure or AI-related services may experience stronger growth trajectories, while other countries could lag. That divergence in growth and inflation paths across jurisdictions increases the complexity of monetary policy decisions.
Financial markets present an additional layer of challenge. Optimism tied to AI has driven rapid equity market gains, producing wealth effects that can support consumption and demand. At the same time, those same market moves raise the possibility of asset price bubbles.
The BIS did not issue prescriptive policy measures in the bulletin. It said central banks will need to distinguish temporary investment-driven booms from permanent productivity improvements to avoid the danger of "policy miscalibration."