Lane says AI may curb wage demands in Europe

ECB chief economist Philip Lane said growing AI use by euro zone companies could weaken workers’ bargaining power at a time when policymakers are watching for wage-driven inflation pressures. Inflation is running at nearly twice the ECB’s 2 per cent target because of expensive energy, but officials have so far found no signs that price pressures are feeding into wages. Lane said AI has not shifted employment trends, while muted hiring plans may be limiting workers’ ability to seek compensation for higher prices.

Lane also said heavy corporate borrowing to finance AI investment is pushing up borrowing costs globally and spilling into euro area bond markets. The increase in long-term interest rates amounts to a material tightening of financial conditions for the euro area and is relevant to the ECB’s monetary policy stance, he said. Over the longer term, AI could lift potential output and trend growth, helping Europe offset the economic impact of a projected decline in the working-age population.