By Ankika Biswas
Oct 8 (Reuters) - Australia's AI investment boom is likely to boost inflation in the near term as productivity benefits take longer to emerge, leaving the central bank with limited scope to overlook price pressures, Jonathan Kearns, a former Reserve Bank of Australia official, said on Thursday.
"What makes this a little bit more difficult is, because it's a new technology, there's more uncertainty about the timeline of investment (and) how much of this investment actually gets put
in place," he told the Reuters Global Markets Forum.
Use of imported equipment, which Kearns estimated accounts for around three-quarters of data centre spending in Australia, will cushion some of the inflationary effect, but domestic spending will still add to aggregate demand, he said.
Australia's inflation accelerated in August as fuel costs surged anew and price pressures remained broad-based. In September, the RBA raised its cash rate for the fourth time in 2026 to a 15-year high of 4.6%, with Governor Michele Bullock saying the AI boom was boosting inflation.
"There's absolutely no chance (the RBA) can look through the inflationary impetus because we've had four or five years of high inflation and inflation being above target," Kearns said.
Now chief economist at Challenger, Kearns expects one more hike from the Australian central bank this year.
He expects AI investment to stay relatively resistant to higher interest rates as businesses press ahead with trying to capture lucrative opportunities.
Consequently, the burden of tighter monetary policy is likely to fall more heavily on households, the exchange rate, and to some extent non-AI business investment, Kearns said.
He said broader gains from AI use would become visible in the labour market once businesses moved beyond using it for routine tasks, and fundamentally redesigned workflows.(Join GMF, a chat room hosted on LSEG Messenger, for live interviews: https://lseg.group/3KFHrhe)
(Reporting by Ankika Biswas in Bengaluru; Editing by Divya Chowdhury and Kevin Liffey)
