Reserve Bank of Australia Governor Michele Bullock has put the global AI investment boom squarely on her list of risks, telling a Sydney business audience that soaring valuations "might not be a bubble, but it might be" and that the rush to build data centres is already adding to an inflation problem her board looks set to confront with another interest rate rise next week.
Speaking at a Committee for Economic Development of Australia (CEDA) fireside chat on Tuesday, her last public appearance before the RBA Monetary Policy Board meets on September 28-29, Bullock described AI as a technology whose payoff lies in the future but whose costs are landing now. The remarks came four days after she appeared before the House of Representatives Standing Committee on Economics, where she signalled the bank's patience with elevated fuel prices was wearing thin.
"AI is the great white hope to improve productivity," Bullock said. "But I think everyone also agrees that there are very few signs yet that AI is actually influencing the supply side of the economy. There's lots of evidence that it's influencing the demand side of the economy."
That mismatch, she argued, amounts to an "awkward sequencing event." In her words: "In Australia at least, we are in a situation of excess demand and the AI boom is adding to that demand ahead of any potential supply impacts that it might have going forward."
A record year for data-centre money
The scale of that demand came into sharper focus with a new RBA staff note, obtained by the ABC, estimating that Australian data-centre operators have raised at least A$35 billion so far in 2026. That already exceeds the A$24 billion raised across all of 2025, a 46 per cent jump, and is more than seven times the annual average between 2020 and 2024. The analysis covers operators including AirTrunk, CDC, Goodman and Macquarie Technology.
The note found the build-out is overwhelmingly debt-funded. Borrowing made up 85 per cent of new funding this year, above US estimates of 60 to 80 per cent, with about A$25 billion coming through syndicated loans. Building those facilities draws on construction labour, electrical infrastructure and skilled trades in a sector already stretched, which is how the boom feeds through to prices elsewhere in the economy. The RBA's August minutes had already flagged the risk that AI and data-centre investment could prove larger than expected and push inflation higher.
On valuations, Bullock was careful not to call the top. "All central banks are a little bit worried about that," she said. "And if it unwinds in a disorderly manner, then that could have implications for the financial system and also for the real economies." She added: "Some people think it's a bubble, some people don't. I don't have a particular view one way or the other, but it's a risk that I think we're watching."
RBA versus Treasury on the productivity payoff
Bullock's caution sets the central bank apart from the more optimistic tone of Treasury's Intergenerational Report, released by Treasurer Jim Chalmers on Monday. The report calls AI "a defining influence" on the economy over the next 40 years and assumes productivity growth returns to 1.2 per cent a year within five years, against an average of just 0.3 per cent over the past decade. Bullock, according to reports of her remarks, suggested the gains could be closer to a decade away, although she framed the Treasury figure as a call to action rather than a forecast to dismiss.
She pointed to the pattern economists call a J-curve. "There tends to be often a J curve in these sorts of things," she said. "People fiddle around and try and figure out what to do with this new technology. Productivity actually can even decline." Only once businesses rework their processes, she said, "you might see productivity take off," adding that the economy is still in "the early stages of the AI productivity boom."
Why It Matters
For Australian borrowers, the AI story is no longer abstract. The cash rate sits at 4.35 per cent after three increases this year, trimmed mean inflation remains above the RBA's 2 to 3 per cent target band, and futures pricing cited by the ABC puts the odds of a September hike at around 90 per cent. All four major banks now expect a move, and ANZ forecasts a further rise in November that would take the cash rate to 4.85 per cent, the highest since late 2008. Commonwealth Bank has already lifted its two-year fixed home loan rate by 0.48 percentage points to 6.82 per cent.
Central bankers have mostly discussed AI as a long-run disinflationary force. Bullock is making the near-term case in reverse: the capital spending arrives before the productivity, so in a capacity-constrained economy the boom behaves like a demand shock. That lens contrasts sharply with the industry push to build faster. In Britain, former chancellor George Osborne, now head of AI for countries at OpenAI, argued at the weekend that local opposition to data centres is holding the country back and that failing to build risks ceding tech sovereignty to the US. "It's really hard to build a datacentre," he said.
What to Watch
The next markers arrive quickly. August labour force figures land on Thursday, with unemployment expected to hold at 4.5 per cent, the bottom of the 4.5 to 5 per cent range Bullock said would "take enough heat out of the labour market" to ease inflation. The Monetary Policy Board announces its decision on September 29. And the RBA's twice-yearly Financial Stability Review, due next week, is the place to look for whether the bank's view of AI valuations and data-centre leverage hardens from watching brief into something firmer.
“You know, it might not be a bubble, but it might be.”— Michele Bullock, Governor, Reserve Bank of Australia