RBA governor says AI spending is showing up in inflation before productivity

The study Bullock cited has the most direct bearing on a business case. Employees adopting AI tended to produce the same output and work 1.5 hours less each week, according to research from the RBA's South Korean counterpart ^[7]. The gain there lands with the employees, as time. The firm does not get it as output. It converts into a measured productivity gain only when the freed hours are turned into more output or taken out of the cost base.

Bullock left room for that gain to arrive later. She said that while "people fiddle around and try and figure out what to do with this new technology, productivity actually can decline" ^[8], and added: "But once we reimagine our business processes... then you might see productivity take off" ^[9]. She is describing a sequence in which the process redesign comes after the spending and the measured return comes after the redesign.

On the bubble question she did not take a side. "Some people think it's a bubble, some people don't. I don't have a particular view one way or the other, but it's a risk that I think we're watching," Bullock said ^[4]. Of the possibility that a messy slump in tech values hurts economic activity ^[6], she said: "All central banks are a little bit worried about that" ^[5]. On Monday, US tech stocks surged after Meta debuted its Muse AI agent and its shares rose 11% ^[14].

The sharper tension is with her own government's numbers. The intergenerational report released Tuesday leaned on a potential "profound" boost from AI to project inflation-adjusted per-person economic activity rising from $99,200 today to $157,300 by 2066 ^[10]. It assumed productivity growth returns to its long-run rate of 1.2% a year, an assumption the Guardian reported economists have said appears unlikely; at 0.8%, the 2066 figure is $136,600 ^[11]. The two paths sit 0.4 percentage points a year apart ^[20] and $20,700 per person apart at the end, about 15% above the lower path ^[18][19]. Bullock's answer to the critics: "Many have put it, 'well, it's an unrealistic assumption, we're not going to get that.' I guess the way I'm trying to think about it is, 'OK, that's what we've got to aim at" ^[12]. The treasurer, Jim Chalmers, told the Guardian's Australian Politics podcast that AI is "the most transformative thing that will happen in our lifetime" ^[13].

What her remarks give a board is a sitting governor saying on the record that the visible effect of rapid adoption and datacentre investment so far is on inflation, not on output ^[3]. A capex approval signed this quarter sits inside that interval, and next quarter's review will be measured against hours or output someone can name.

The cost of capital in Australia is moving the other way. Bullock declined to say whether she would recommend an increase next Tuesday ^[17], and traders put more than a 90% chance on a rise from 4.35% to 4.6%, a 25 basis point move that would take rates to a 14-year high ^[16][21]. House prices have fallen 3.1% over the past three months after three RBA rate rises and government changes to property investor tax breaks ^[15].