Fabio Panetta, a member of the ECB Governing Council, stated that the economic impact of AI on inflation depends on whether the technology first boosts consumer demand or corporate productivity. He presented this framework at a research conference in Kyiv on September 21.
Panetta identified two primary channels for AI's influence. The demand-driven channel involves job creation and increased consumer income, which can push prices up. Conversely, the productivity-driven channel focuses on automation and cost reduction, which may lead to disinflation.
A study by the Bank of Italy suggests that widespread AI adoption could increase labor productivity growth in Italy by over 1 percentage point annually. However, Panetta noted that the timeline and scale of these benefits remain highly uncertain.
Capital investments in AI infrastructure, such as data centers and energy, create short-term demand that can elevate prices. Panetta also warned that current valuations of technology stocks appear overly optimistic, leaving them vulnerable to potential market corrections.
The ECB's future interest rate policy will depend on which effect dominates. If demand-driven inflation persists, the bank may need to keep rates higher for longer. If automation leads to significant job displacement and lower spending, the ECB might be forced to cut rates.
