RBA links datacentre investment to inflation

The Reserve Bank this week lifted interest rates to an 18-year high and singled out datacentres as part of the growing inflationary pressures facing the economy. Governor Michele Bullock said datacentre-related investment had been much stronger than expected and had added to inflationary pressures in a capacity-constrained economy.

The bank's statement of monetary policy went further, saying AI-related investment is driving rapid growth in prices for technology-related goods. Bullock cautioned that tightening policy now was the lesser evil: "some pain now will prevent even worse pain" in the future, she said.

Asked when AI would start having a positive impact on inflation, Bullock shrugged: "your guess is as good as mine".

She also warned against assuming the technology would keep rates down. If AI lifted productivity dramatically, she said, it could increase the neutral interest rate, meaning the productivity dividend would not necessarily translate into lower rates.

Deloitte: a $141bn pipeline competing with housing

The scale of the datacentre boom was quantified on Thursday by Deloitte Access Economics, which reported that Australia's $1.39tn investment pipeline now includes 37 datacentres worth $141bn - a 36% increase in a year.

Deloitte director Sheraan Underwood said the surge was "competing directly with housing and infrastructure for workers and materials". The firm's warnings set out why the build-out squeezes the economy before it rewards it:

• •Australia has "less room to absorb" the investment surge because of high inflation, Underwood said.
• •Construction demand and inflation pressures are arriving now, while the productivity dividend may come much later, Deloitte warned.
• •The direct economic payoff of datacentres would not be as big, because technology fit-out is largely imported and few workers staff the facilities.

US midterms show datacentres can cost votes

The political risks of the build-out were on display in the United States. Politico reported polling showing half of Americans oppose datacentres near their homes.

NBC exit polls found 56% of US midterm voters said AI and datacentres were a "crucial" or "major" factor in how they voted.

Datacentres were on the ballot in dozens of US towns, and vote trackers recorded public votes overwhelmingly won by proposals to restrict construction.

Alternatives to rate rises at home

The rate rise has revived debate in Canberra over whether monetary policy is the only tool for the job. Senator David Pocock has proposed a Senate committee to investigate alternatives to monetary policy, including temporary, progressive changes to income tax or superannuation.

Independent economist Saul Eslake pointed to one such lever, saying a small rise in superannuation rates - from even 12 to 13% - would help curb spending. Pocock has also suggested taxes on windfall profits and gas exports to take more cash out of the economy.

Community opposition is emerging at home as well. Australian community groups are organising and protesting against datacentres - a backlash smaller than the American one, but growing.

Labor is still considering its long-awaited plan to attract AI investment, leaving open how Australia balances the costs and benefits.