Australia’s artificial intelligence investment boom will add to inflation pressures in the near term, former Reserve Bank official Jonathan Kearns has warned.

Kearns, now at investment firm Challenger, said the surge in AI-related capital spending would boost demand across the economy, even as it promises productivity gains in the longer run.

His comments come with the RBA cash rate at 4.6 percent after four hikes this year. Kearns expects the central bank to raise rates once more.

The warning highlights a tension at the heart of the AI boom. Data centres, chips and power infrastructure require enormous upfront spending, which can overheat an economy before the efficiency gains arrive.

Australia is pouring money into AI infrastructure, following a global wave led by the United States. The spending is welcome for growth but awkward for a central bank still fighting inflation.

For households already squeezed by higher mortgage payments, the prospect of another hike is unwelcome news.