Artificial intelligence could push up inflation - SNB's Tschudin says

Swiss National Bank official Petra Tschudin indicated that artificial intelligence could contribute to inflationary pressures in the short term. The SNB is closely monitoring the technology's impact on prices, as it can have both positive and negative effects. Investment flows are being redirected, which may result in adjustments and economic difficulties.

Shortages, such as those of chips, can occur, causing prices to rise. However, in the shorter or medium-term, AI could also lower prices by enhancing productivity and making goods cheaper. Yet, for AI to have a deflationary impact, the price decline would need to consistently occur, which is uncertain given that inflation is measured annually.

Tschudin emphasized that while productivity gains are not new, they alone do not typically lead an economy into deflation. The International Monetary Fund's recent chief economist, Silvana Tenreyro, echoed this sentiment, warning that even if AI boosts productivity, it may not necessarily lower inflation. The SNB currently expects inflation to hover between 0% and 2% annually through the first quarter of 2029, but this should not be interpreted as a forecast where the central bank will maintain its current policy interest rate of 0%.

The forecast is based on the SNB's view of inflation if interest rates remain unchanged. Should new relevant information about inflation arise, the central bank will adjust its monetary policy accordingly. Tschudin stressed that the conditional inflation forecast should not be construed as an indication that interest rates will remain at their present level for three years; the bank does not publish interest rate projections.