AI boom blurs inflation signals, complicates rate decisions: BIS

KUALA LUMPUR, 29 JULY 2026 —

The artificial intelligence boom could make it harder for central banks to gauge inflation and set interest rates as the technology simultaneously lifts demand and expands future supply, the Bank for International Settlements said on Monday.

The BIS, the umbrella body for the world’s central banks, said AI-driven investment, trade and financial markets are accelerating before productivity gains fully appear, creating an unusually complex environment for policymakers. AI-related spending already under way is boosting activity, trade and equity markets, which could add short-term inflation pressure by strengthening demand.

Over time, AI could ease inflation by raising productivity and economic capacity, but the scale, timing and distribution of these benefits remain uncertain. The BIS warned that the dual impact on demand and supply could distort traditional economic signals, making it harder to judge underlying conditions and calibrate monetary policy.

A key challenge is separating growth driven by AI investment from signs of overheating. Large outlays on data centres, chips and digital infrastructure may reflect future capacity rather than excessive demand, while productivity gains could mask underlying inflation pressures. The BIS also noted uneven effects across countries and labour markets, with stronger gains for economies tied to semiconductors, computing and AI services and weaker outcomes elsewhere.

AI optimism has driven sharp gains in technology stocks, creating wealth effects that could support spending. The BIS cautioned, however, that stretched valuations increase the risk of asset bubbles. The report did not recommend specific measures but stressed that central banks must distinguish temporary AI-driven investment surges from sustainable productivity improvements to avoid policy missteps.