The worldwide rush to build artificial intelligence capacity has become part of Australia's inflation story, Governor Michele Bullock told a parliamentary committee in September.

Artificial intelligence is usually discussed in terms of productivity, jobs or share-market valuations. At the Reserve Bank of Australia, it is now also being discussed in terms of prices.

Appearing before the House of Representatives Standing Committee on Economics in Canberra on 18 September, Governor Michele Bullock identified the global AI boom as one of the external forces shaping the inflation outlook. "The global AI boom is driving stronger growth in economies that are key parts of the AI supply chain," she told MPs.

She also said AI is "driving higher global prices for some AI-related technologies that are supply constrained."

Less than a fortnight later, on 29 September, the Monetary Policy Board lifted the cash rate target by 25 basis points to 4.60 per cent. Its statement named AI-related demand pushing up technology goods prices as one of the upside risks flagged in August that were now materialising.

Why supply constraints matter

The key phrase in Bullock's remarks is "supply constrained". When demand for a product surges and producers can expand output quickly, prices need not rise much. When supply cannot keep pace, because factories, specialised components or production know-how take time to scale up, prices tend to climb instead.

That appears to be what the RBA is describing for some AI-related technologies. Global demand for AI-related technology has, in effect, run ahead of what suppliers can deliver in the short term, and the result is higher prices for some of that equipment.

For Australia, higher global prices for imported technology can flow through to what local businesses and households pay, whether for computing equipment, devices or the services that rely on them. The Board's statement framed this as AI-related demand pushing up technology goods prices, an inflation pressure that originates offshore but lands at home.

Two sides of the AI boom

Bullock's testimony pointed to two distinct effects.

  • Growth abroad. Economies that are key parts of the AI supply chain are growing more strongly, according to the Governor. Stronger global growth can support demand for a range of goods and services.
  • Prices for some technology. Where supply of AI-related technology is constrained, prices are rising globally, adding to cost pressures for buyers, including in Australia.

Neither effect is something the RBA can directly control, and neither is likely to be resolved by a single decision on interest rates. Interest rates set in Sydney do not determine global chip supply or the pace of AI investment overseas. What the Board can influence is domestic demand, and whether imported price pressures combine with home-grown ones to keep inflation elevated.

Where AI fits in the bigger inflation picture

The AI effect is one of several forces the RBA has flagged. The Board's September statement also listed a broader Middle East conflict and higher global energy prices, capacity pressures in the economy and firms raising or planning to raise prices. It said short-term inflation expectations are high and recent inflation outcomes had been stronger than expected.

The Governor was careful to stress that the core problem is domestic. "Inflation is too high and has been driven by domestic capacity pressures," she said on 29 September.

The numbers show why the Board remains concerned. Headline inflation, measured by the monthly CPI indicator, was 4.0 per cent annually in August, and headline CPI was 3.9 per cent over the year to the June quarter. Underlying inflation, measured by the trimmed mean, was 3.6 per cent over the year to the June quarter. Bullock described underlying inflation as "about 3.5 per cent", around a percentage point above the 2.5 per cent midpoint of the 2–3 per cent target range.

Before the committee, she said "inflation will not return to around the midpoint of the target range until late 2027."

Investment, risk and productivity

The AI boom is also part of a wider investment story. The Board's September statement described business investment and debt growth as strong. The August Statement on Monetary Policy forecast business investment growth of 6.5 per cent over the year to June 2026, easing to 4.3 per cent by December 2026. Those forecasts were prepared with a cash rate assumption of around 4.3–4.5 per cent, before the September hike.

The RBA's Financial Stability Review, released on 1 October, took a different angle on AI. It listed AI advances among the elevated threats facing the financial system, alongside geopolitical tensions, global financial market vulnerabilities and disruptions to critical service providers. The review also noted that the Australian Prudential Regulation Authority wrote to institutions about AI-driven cyber threats on 30 April 2026.

In other words, the RBA is watching AI on two fronts: as a source of price pressure through constrained technology supply, and as a source of risk to the stability of the financial system.

A frequent argument in favour of AI is that it could eventually lift productivity. For now, the RBA is focused on the weakness of productivity growth rather than any future boost.

"Continued weak productivity growth means that the economy cannot grow strongly without putting pressure on inflation," Bullock told the committee. On 29 September she was even more direct: "The bottom line is that productivity is doing nothing."

She also drew a clear line around what the central bank can do: "monetary policy can't do anything about productivity." Instead, she argued, "The best thing we can do for productivity is get inflation low and stable".

As for the path ahead, Bullock declined to signal the Board's next move. "I'm not going to give you forward guidance," she said. The next CPI release is due on 28 October and the next decision at 2.30 pm on 3 November.

The bottom line

Bullock's message to MPs was that the global AI boom is more than a technology story: it is boosting growth in AI supply-chain economies and pushing up prices for some supply-constrained technologies. The Board has since confirmed that AI-related demand lifting technology goods prices is one of the upside inflation risks now materialising. It sits alongside energy prices and domestic capacity pressures in a crowded list of concerns, with underlying inflation still about a percentage point above the target midpoint.