Global Market | AI boom could complicate central banks’ inflation assessment, monetary policy decisions: BIS

The artificial intelligence boom could make it increasingly difficult for central banks to assess the true state of the economy and determine the appropriate path for interest rates, as the technology is simultaneously boosting demand while expanding future supply potential, the Bank for International Settlements (BIS) said, as per a Reuters report.

In a bulletin examining the economic impact of artificial intelligence, the global central bank umbrella body highlighted that policymakers face an unusually complex environment as AI-driven investment, trade flows and financial market movements are accelerating before widespread productivity gains become fully evident.

According to the report, the current wave of AI spending, which is increasingly being supported by debt financing, is already lifting economic activity, boosting trade and driving gains in equity markets. These developments could contribute to short-term inflationary pressures by strengthening demand.


However, the longer-term impact of AI could be disinflationary if the technology improves productivity and expands economic capacity. By increasing efficiency and output potential, AI could help ease inflation pressures over time, though the scale, timing and distribution of these benefits remain uncertain.

The BIS said that the simultaneous impact of AI on both demand and supply could blur traditional economic signals, making it harder for central banks to accurately assess underlying conditions and calibrate monetary policy.

A key challenge for policymakers is distinguishing between growth driven by AI-related investment and signs of an overheating economy. Large-scale spending on data centres, advanced chips and digital infrastructure could push economic activity higher, but some of this expansion may reflect future improvements in productive capacity rather than excessive demand, the report stated.

At the same time, productivity gains from AI could conceal underlying demand pressures, complicating efforts to interpret inflation trends and determine whether monetary policy needs to remain restrictive.

The BIS also pointed to uneven effects of AI adoption across countries and labour markets. Economies with strong positions in semiconductor manufacturing, computing infrastructure and AI-related services could benefit from stronger growth, while countries with limited exposure to these industries may see fewer gains.

Such differences could create diverging growth and inflation patterns across economies, adding another layer of complexity for central banks operating in different regions.

Financial markets present another area of concern. AI optimism has contributed to sharp gains in technology stocks and broader equity markets, creating wealth effects that could support consumer spending and economic activity. However, the BIS warned that elevated valuations also increase the risk of asset price bubbles.

The BIS did not propose specific policy measures but emphasised that central banks would need to separate temporary AI-driven investment surges from sustainable productivity improvements. Failure to do so could increase the risk of monetary policy misjudgements as economies adjust to the rapid expansion of artificial intelligence.