Technological breakthroughs are often viewed as purely deflationary, where better tech should lower costs and boost supply. In contrast, recent reports from Citadel Securities suggests that we may be facing "efficiency fueled inflation".
While markets are focused on AI and its ability to replace human workers, the direct reality is a massive boom in Capex, creating a perfect storm for the business cycle. Commodity and infrastructure will take an immediate hit, where the push for data centers has sent memory prices up 660%, creating a massive demand for construction labor. This data center surge, which is estimated to create 4.3 million new jobs, is placed at the same time as more restrictive immigration policies. Essentially, labor supply contraction is meeting labor demand spikes.
While artificial intelligence is a fantastic tool for future efficiency an technological growth, presently it is a massive driver of aggregate demand and resource scarcity that could potentially keep interest rates higher for longer.
https://www.citadelsecurities.com/news-and-insights/infl-ai-tion-risks/
This is a really interesting shift in thinking because it challenges the usual idea that tech always lowers inflation. What you’re pointing out makes sense—AI isn’t just improving efficiency yet, it’s triggering a huge wave of spending on infrastructure, labor, and materials all at once. That kind of demand surge, especially in areas like data centers and construction, can absolutely push prices up in the short run.
ReplyDeleteThis article brings a good idea to light, that idea being even though AI is rumored to take jobs from millions. We are seeing a giant surge of job created from the construction of data centers. Once, the AI "hype" does die down, we will see the news job created to maintain LLM's and the ones that become obsolete due to AI.
ReplyDeleteIn the long-run, if AI does have as large of an impact on the job market as some suspect it will, we will need to consider the inflationary/deflationary impact of the technology in the context of how it affected the earnings of the average person in the economy.
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