AI and monetary policy
Dinner speech by Philip R. Lane, Member of the Executive Board of the European Central Bank, at the closing conference of the European System of Central Banks Research Network on Challenges for Monetary Policy Transmission in a Changing World (ChaMP), Rome, 6 July 2026.
In a recent speech, the speaker acknowledged the impressive work of the ChaMP research network, which has provided valuable insights into the impact of monetary policy. The focus of his remarks was on how artificial intelligence (AI) might affect monetary policy.
One possible way to view AI is as a permanent increase in productivity, leading to higher incomes. If households and businesses quickly recognize the lasting nature of this productivity boost, they could incorporate future income rises into their spending decisions. This could put upward pressure on inflation from the start of the AI transition.
However, it's unlikely that everyone will accurately know the specifics of future productivity shocks. A more sensible approach might be for consumers to be less responsive immediately and adapt their spending over time.
Consumers also have significant uncertainty about how AI will affect their incomes. This uncertainty may slow their adjustment to new income levels. A more realistic scenario could involve households and firms gradually learning about the income and employment effects of productivity shocks. As they understand the impact better, spending patterns would adapt more slowly, diminishing any initial inflationary effect.
The overall impact of AI on inflation depends on various factors, including how quickly spending decisions incorporate productivity and income gains.
Written by urgent.news from BIS Central Bank Speeches's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
