Artificial intelligence's impact on inflation will hinge on how its productivity gains are distributed across the economy, according to Fabio Panetta, a member of the European Central Bank's governing council and governor of the Bank of Italy.
Speaking at an event hosted by the National Bank of Ukraine in Milan on Monday, Panetta said central banks must understand who benefits from AI-driven gains because their distribution will help shape aggregate demand and inflation.
AI is set to transform productivity, economic growth, labor markets, financial markets and payment systems, he said.
If AI primarily creates new tasks and raises expected labor income, demand could increase before the full productivity benefits materialize, prolonging inflationary pressures, Panetta said. Conversely, if automation dominates, weaker consumption could cause the disinflationary effects of AI to emerge sooner.
Central banks cannot remain on the sidelines as these changes unfold, Panetta said, adding that understanding the ongoing shifts is essential to building and preserving central bank credibility — which he described as an essential asset that depends on the nature of the challenges faced.
