Economists are divided on the extent to which artificial intelligence will prove disinflationary—and when. On the one hand, AI capital expenditure (capex) is driving massive demand for finite resources and skills, thereby pushing up prices. On the other hand, AI’s productivity benefits could increase efficiency, bringing down costs in the longer term.
Professor Jeremy Siegel, an emeritus professor of finance at The Wharton School of the University of Pennsylvania, has a further theory: AI could help address the affordability crisis through agents tasked with making consumers’ lives cheaper.
While AI and data centers aren’t hugely popular at present, any assistance in bringing down the cost of living is likely to be welcomed. Currently, U.S. consumers face inflation levels of 3.4%, according to the latest data from the Bureau of Labor Statistics. That is significantly ahead of the Federal Reserve’s 2% target, which hiked the U.S. base interest rate this month as a result.
Affordability is also top-of-mind for voters in the run-up to midterms: A July study from Pew Research showed the economy was the most important issue for voters, with 29% saying they wanted to hear plans to address price increases from Congressional candidates. A further 15% said affordability and the cost of living, specifically, were the key issues for them.
Professor Siegel suggests AI can help. Referencing the launch of Meta’s personal AI agent, Muse, Prof. Siegel wrote for WisdomTree that a “fascinating new force” was emerging, with “a potentially much broader economic development.”
Muse has payment capabilities to enact the goals set by users, Meta announced earlier this month. For example, it could grocery shop for a recipe saved on Instagram, or proceed with the sale of a car once the right price has been agreed.
He noted: “Companies in banking, telecommunications, insurance and other industries have long benefited from customer inertia. Consumers frequently stay with an inferior rate or service because switching simply is not worth the effort. An AI agent capable of comparison shopping, negotiating and switching providers changes that equation.”
Dot-com comparison
Meta has some way to go: The Guardian reported today that a Muse agent had conducted the sale of an item on Facebook Marketplace in Toronto. The agent completed the sale and arranged pick up of the item, sharing the seller’s home address without permission, or approval of the sale.
The emergence of such a service—whether it’s from a hyperscaler or any other market participant—could have the impact of shifting the macroeconomic picture. “I wrote more than 25 years ago that the internet could intensify price competition by making comparison shopping dramatically easier,” Siegel adds. “The results were mixed because consumers still had to take action themselves. AI agents potentially remove that final friction.
“If they begin negotiating phone bills, moving deposits toward higher-yielding accounts or routinely finding cheaper alternatives, they could attack what might be called inertial monopolies. That could ultimately be an important competitive, and disinflationary, force across the economy.”
Demand from consumers is already notable. In July, the Organisation for Economic Co-operation and Development (OECD) shared in a paper that a third of individuals across its member countries used AI, increasingly to support financial decision-making such as “assistance with choosing and understanding financial products, budgeting, credit management, investing, and retirement planning.”
However, the OECD paper said that increased financial literacy is going to be needed if consumers are to use the technology effectively and safely. The study explains: “Consumers need to know how to ask appropriate questions, how to critically assess personal data requests and the responses they receive. Low levels of financial, digital and AI literacy could further increase the potential for harm associated with the use of these technologies.”