The AI investment boom is “generating massive valuations” for companies in U.S. stock markets and countries like South Korea, creating a wealth effect that could add to price pressures, Gorinchas said in an interview with Bloomberg News.
AI could fuel inflation not only by raising the cost of semiconductors and technology devices, but also by making consumers wealthier and more willing to spend, Pierre-Olivier Gorinchas, chief economist at the International Monetary Fund, told Bloomberg, warning that AI creates new inflationary pressures through supply and demand channels.The AI investment boom is “generating massive valuations” for companies in U.S. stock markets and countries like South Korea, creating a wealth effect that could add to price pressures, Gorinchas said in an interview with Bloomberg News.Booming technology stocks are swelling retirement accounts and investment portfolios, making consumers feel wealthier and more willing to spend on vacations, homes and other large purchases.“These demand pressures generate inflation,” Gorinchas said.
“Different channels of the AI component”
According to Gourinchas, AI contributes to inflation through multiple channels.“There are different channels of the AI component,” he said. “One is through supply chain bottlenecks, the other is through the demand side. And they’re both going in the same direction.”The impact on the demand side comes in addition to supply constraints already driven by investment in AI.
The AI boom raises technology costs
The wealth effect adds to inflationary pressures already emerging from AI-driven demand for chips and computing infrastructure.Apple this week raised prices on a range of devices, citing higher memory and storage costs resulting from demand from artificial intelligence data centers. Microsoft also announced another round of price increases for Xbox consoles.
Inflation fears
The inflation debate has come full circle for Gourincha, who is set to leave the International Monetary Fund next week after four years to return to UC Berkeley.He took over the IMF’s research department in early 2022, shortly before the Russian invasion of Ukraine triggered one of the biggest global inflation shocks in decades through energy and supply chain disruptions.He said the key question now is whether recent price increases will become embedded in consumer inflation expectations.“The memory is fresh,” said Gorinchas. “Everyone remembers.”
Energy and debt also remain major risks
Beyond artificial intelligence, Gorinchas said his biggest concerns for the global economy remain uncertainty over energy supplies due to the Iranian conflict and deteriorating financial conditions in many countries.“The desire to increase revenue is close to zero in many places,” he said. “So how do you solve this financial equation?”