RBA Faces Tougher Inflation Fight as AI Boom Adds to Economic Pressure
Rising investment in AI infrastructure is adding to demand, keeping pressure on the Reserve Bank as it considers another rate hike
Australia’s inflation challenge is becoming more complicated as strong investment in artificial intelligence infrastructure adds to demand across the economy. The Reserve Bank of Australia (RBA) has increasingly pointed to the rapid construction of AI data centres as another factor contributing to inflationary pressure, alongside geopolitical tensions and supply constraints.
AI investment adds pressure to construction
RBA assistant governor Sarah Hunter said the rapid rollout of data centres was creating additional demand for workers and resources, with some businesses offering higher wages to attract labour into construction. She noted that business investment had recorded double-digit growth over the previous nine to 12 months, with a significant portion linked to data centres.
The scale of investment has also become increasingly visible in broader economic data. Research from the Committee for Economic Development of Australia showed business investment had reached 12.6% of GDP, its highest level in more than a decade. Investment in information, media and telecommunications had almost doubled over the past year, driven largely by spending on data centres, cloud computing and AI infrastructure.
Rate expectations remain elevated
The stronger investment cycle comes as markets continue to assess the possibility of further RBA tightening. Financial markets are pricing in at least a 75% chance that the cash rate will reach 4.6% on September 29, while two further increases are viewed as highly likely by February. A rate of 4.85% would represent the highest level since the rate cuts introduced during the global financial crisis.
The RBA has also highlighted public concern about inflation. Its community survey found that two-thirds of respondents ranked inflation among their top three economic concerns, although only 25% correctly identified that higher interest rates would ultimately help reduce inflation.
What investors should watch next
The combination of strong AI-related investment, persistent inflation and expectations for higher borrowing costs is creating another layer of uncertainty for Australian markets. The key focus will be how quickly demand cools, whether inflation pressures ease and how the RBA responds at its upcoming policy meetings. Higher rates could also affect businesses and sectors sensitive to borrowing costs as policymakers attempt to bring economic demand back towards available supply.
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