How AI is forcing central banks to rethink inflation and rates in World Economy News 30/04/2026 Central banks are racing to understand how AI is reshaping inflation — and they do not all agree on the answer. For most of the past three years, central banks have treated artificial intelligence the way they treat climate change or demographics: a long-horizon force worth monitoring, but not yet an instrument of monetary policy. That distinction has now collapsed. Policymakers have begun to frame AI as a structural shift on the scale of electrification or the internet, one that will reshape inflation, interest rates and the very tools central banks use to set them. The disagreement is no longer about whether AI matters. It is about timing, transmission and direction: how quickly its effects will materialise, whether prices rise or fall first and how central banks should respond to a force that may be inflationary in the short term but disinflationary over time. What the ECB and Bundesbank are already doing with AI The European Central Bank has moved fastest in turning AI from theory into practice. In a blog post published on 21 April 2026, four ECB economists — Óscar Arce, Karin Klieber, Michele Lenza and Joan Paredes — disclosed that since the end of 2022 a machine learning model has been part of the analytical toolkit used to prepare monetary policy decisions for the Governing Council. The model draws on roughly 60 indicators capturing inflation expectations, cost pressures, real economic activity and financial conditions, and is updated several times each quarter. The results have already been tested in real time. In the second and fourth quarters of 2025, the model flagged upside risks to core inflation that later materialized, with final readings coming about 20 basis points above official Eurosystem projections. “Artificial intelligence (AI) can help track inflation risks in real time,” the authors wrote. The Bundesbank is moving along a similar path. At a joint Bundesbank–SUERF conference in Frankfurt on 9 December 2025, Bundesbank President Joachim Nagel affirmed that the German central bank is already using a wide range of AI applications to improve analyses and support work processes. These include text-based intelligent assistants, AI-driven document analysis and a model called MILA that evaluates communications from euro area central banks. “Technology should ultimately serve people. And the same holds for us as central banks: we use AI to fulfil our mandate as well as possible,” Nagel said. What the Fed is saying about AI: From curiosity to core debates At the Federal Reserve, the shift has been less operational but more conceptual and increasingly urgent. Officials have moved from acknowledging AI to debating how it reshapes the core trade-offs of monetary policy. Last year, Federal Reserve Governor Christopher Waller argued that AI is being adopted faster than personal computers, the internet or smartphones, and that the productivity question now sits at the centre of the monetary policy debate. “A crucial question is whether AI will contribute to a resurgence in productivity growth. Any sustained productivity growth above 2 percent will tend to support rising real incomes and living standards without inflation pressure. As a monetary policymaker, I’m hoping that AI delivers,” Waller said. Speaking at the Euro20+ event hosted by Nagel in November 2025, Federal Reserve Vice Chair Philip Jefferson highlighted AI’s double-edged