RBA Eyes AI-Led Inflation Risk as Cash Rate Hits 4.85%
Reserve Bank of Australia assistant governor Sarah Hunter warned in Sydney that artificial intelligence could lift spending faster than the economy can supply goods and services. She said that could worsen inflation as the cash rate sits at an 18-year high of 4.85%.
The Reserve Bank of Australia is watching artificial intelligence as a fresh source of inflation. Assistant governor Sarah Hunter warned in Sydney on Monday that AI could lift spending faster than Australia can produce goods and services.
That would push prices higher at a time when the cash rate stands at an 18-year high of 4.85%. The bank raised rates in September and again in November.
Why AI matters for prices
Dr Hunter said public debate mostly asks whether AI will replace jobs. She argued the effects are "likely to be more complex".
Productivity gains and higher national income could lift consumer spending, she said. Some households may act early. "Anticipating this, some households may start consuming more today or in the near future, before the impact of AI on the economy's potential growth is fully realised," she said.
Saving less and borrowing more to bring spending forward would add pressure to the economy and inflation, she said. She called it a significantly challenging time for Australia.
Data centres and borrowing costs
Australia's largest AI-related investment is the rapid expansion of data centres. These large buildings house the computers and servers behind chatbots, streaming services and search engines. Some are planned to exceed 100,000 square metres.
Dr Hunter confirmed the RBA's estimates for data centre investment have risen 10-fold in the past three years. Government figures showed 162 data centres in Australia as of March 2026, mostly in Sydney and Melbourne.
Much of that spending goes on imported equipment, particularly IT gear made overseas. She said this "dampens the net contribution to GDP", or gross domestic product, the total value of what the economy produces.
Businesses are also experimenting with new technology to expand capacity, she said. Those costs can flow through to higher everyday prices. War-related supply problems abroad are adding to price pressures at the same time.
Global demand for investment could also rise while global savings fall. That could lift the neutral rate, the interest rate that balances the supply of and demand for savings worldwide. "[Firms] will be competing for scarce savings, pushing up interest rates," Dr Hunter warned.
Financial stability risk
Dr Hunter said markets are becoming increasingly invested in AI despite the difficult economic backdrop. That raises the damage if returns fall short of high expectations.
"Share and bond prices could fall sharply, potentially causing major disruption to financial markets," she warned. She said AI may also be increasing risks to financial stability.
Her speech follows comments from RBA governor Michele Bullock, who named AI investment as a key concern for the bank. After more than 12 months of elevated inflation, the RBA has said Australia's problems are largely domestic. The Middle East conflict has pushed up headline inflation significantly since March, but the bank says high public and government spending is the more pressing issue.
