Artificial intelligence could push up inflation - SNB's Tschudin says

ZURICH, Aug 21, Swiss National Bank (SNB) governor Petra Tschudin has warned that artificial intelligence could temporarily increase inflation, though the long-term effects of the technology remain uncertain. Speaking in an interview published on Friday, Tschudin highlighted the potential for AI to create upward pressure on prices in the short or medium term. Tschudin noted that the SNB is closely examining the influence of AI on pricing dynamics. She explained that shifts in investment patterns driven by AI might result in disruptions within the broader economic framework. These disruptions could manifest as shortages, such as those affecting semiconductor supplies, which in turn could elevate costs. “Shortages can occur, for example with chips, causing prices to rise,” she stated, emphasizing that these factors could contribute to inflationary pressures over the coming months. While acknowledging the possibility of AI reducing prices through increased efficiency and lower production costs in the long run, Tschudin cautioned against assuming a consistent downward trend in prices. She pointed out that inflation is measured annually, meaning sustained price declines would need to occur repeatedly to trigger deflation. “Productivity gains as such are not a new phenomenon. They do not, by themselves, lead an economy into structural deflation,” she added. This perspective aligns with recent warnings from other financial institutions. On Thursday, IMF chief economist Silvana Tenreyro expressed similar concerns in a study released by Bank of England researchers. Tenreyro suggested that while AI may enhance productivity, it might not necessarily lead to a reduction in inflation. Her findings underscore the complexity of assessing AI’s macroeconomic impacts. The SNB’s latest inflation outlook, issued in conjunction with its updated economic projections, indicates that it does not anticipate inflation exceeding its target range of zero to two percent for annual price increases during the first quarter of 2029. However, Tschudin clarified that this projection assumes current interest rates remain unchanged. “If there is new relevant information about inflation, we adjust monetary policy,” she emphasized. She further stressed that the conditional nature of the forecast should not be interpreted as a commitment to maintaining existing interest rates for an extended period. “We do not publish interest rate forecasts,” Tschudin said, highlighting the SNB’s flexible approach to monetary policy in response to evolving economic conditions. As the global economy continues to grapple with the implications of rapid technological advancement, the role of AI in shaping inflationary trends remains under active scrutiny. The SNB’s ongoing evaluation reflects a broader effort among central banks to understand how emerging technologies might influence traditional economic indicators. With the potential for both inflationary and deflationary outcomes, policymakers are keenly aware of the need for adaptive strategies that can respond effectively to shifting market realities.