The Reserve Bank of Australia (RBA) has identified the rapid expansion of artificial intelligence datacentres as a significant contributor to current inflationary pressures, adding a new layer of complexity to the Albanese government’s economic strategy. This assessment comes as the central bank raises interest rates to an 18-year high, a move designed to cool an economy where demand is outstripping supply.
RBA Governor cites datacentre demand
RBA Governor Michele Bullock highlighted the issue in her statement of monetary policy, noting that investment in datacentres has been much stronger than expected. She explained that this surge in spending adds to inflationary pressures at a time when the domestic economy is already capacity constrained. The central bank observed that AI-related investment is driving rapid growth in prices for technology-related goods.
Bullock warned that some pain now will prevent even worse pain in the future. However, she admitted uncertainty regarding when the technology might start to have a positive impact on inflation. She stated that if productivity improves dramatically because of AI, it could help, but cautioned that it might also increase the neutral interest rate. This means lower inflation and lower rates are not guaranteed outcomes.
Investment boom vs. economic reality
The scale of the investment is substantial. Deloitte Access Economics reported on Thursday that Australia’s investment pipeline includes 37 datacentres worth $141 billion, a 36 percent increase in a single year. Deloitte director Sheraan Underwood noted that this boom is competing directly with housing and infrastructure for workers and materials.
Underwood warned that the economic dividend may take time. While construction gains are expected to be substantial, the direct economic payoff will not be as large because the technology fit-out relies largely on imported goods and requires few workers to staff the facilities. Deloitte concluded that construction demand and inflation pressures are arriving now, while the productivity dividend may come much later.
This timeline creates a political challenge for the government. The Albanese administration is mulling its long-awaited plan to attract AI investment, but the RBA decision demands politicians better explain what the benefits of this rollout will be. The government must justify why ordinary workers should endure short-term economic pain for potential long-term gains that are not yet visible.
Political risks and alternative policies
The political risks of this technology boom are becoming clearer. Recent US midterm elections showed that datacentres are becoming political kryptonite for voters not sold on the AI boom. Polling indicated that half of Americans oppose datacentres near their homes, and exit polls found that AI and datacentres were crucial factors for 56 percent of voters. In dozens of towns, public votes overwhelmingly supported proposals to restrict construction.
While the backlash in Australia is smaller, it is growing. Community groups are organising and protesting against local developments. Labor should not overlook this bubbling voter unease as they navigate the economic landscape.
Some economists and politicians are proposing alternatives to monetary policy. Senator David Pocock has suggested a Senate committee investigate options such as temporary, progressive changes to income tax or superannuation. Independent economist Saul Eslake has argued that a small rise in superannuation rates, from 12 to 13 percent, could take money out of workers’ pockets and help curb spending. Pocock also suggested taxes on windfall profits and gas exports to remove more cash from the economy.
The debate over government spending has also intensified. Shadow energy minister Dan Tehan has criticized a blowout in green subsidies from a budgeted $2.3 billion to $8.5 billion. This $6.2 billion increase represents 4 percent of the total datacentre investment or 16 percent of the growth in datacentre investment in just one year. The government now faces difficult choices about how to balance the need for new AI investment with the immediate economic pressures facing ordinary Australians.
Source: The Guardian
