Home The Impact of AI on Inflation

The Impact of AI on Inflation

by Ant Sh
The Impact of AI on Inflation

In his keynote speech at the National Conference of Statistics, Piero Cipollone, Member of the Executive Board of the European Central Bank, spoke, among other things, about the impact of AI on inflation:

First, AI could affect cost pressures in the economy in both directions.

We may see AI exerting downward pressure on prices in various ways. For instance, if the net effect of AI is that it substitutes labour and increases productivity, we could see a reduced risk of labour shortages and downward pressure on unit labour cost growth. This is especially relevant in the euro area, where unemployment is at a record low and the working age population is projected to decline by 19% by the end of the century because of population ageing.

AI could also lead to a decline in energy prices through its impact on the supply side, for instance through enhanced grid management and more efficient energy consumption. And it could provide consumers with better tools for price comparison.

But AI could also create upward price pressures.

For instance, the uptake of AI will also have an impact on global energy demand, with the computational power required for sustaining AI’s rise doubling every 100 days. This could push up energy costs. Moreover, AI may encourage discriminatory pricing by facilitating the real-time analysis of consumer demand and price elasticities. And algorithms consistently learn to charge collusive prices that are higher than competitive ones, even without communicating with one another – in part by exploiting well-known biases that deviate from rational consumer behaviour.