Inflation has come down from last year’s peak levels, but as recent data shows, it’s still not as low as anyone would have liked. The Fed has done its job, raising interest rates 11 times and keeping them at a 23-year high. Is it enough? Maybe, but some economists say we are in a new era of rising inflation driven by sweeping global trends.
Whether permanent or temporary, costs will rise due to a variety of factors, including onshoring and nearshoring initiatives, ongoing trade tensions with China, the transition to green energy, tighter labor supplies, rising wages, and an aging population Chemicalization drives up medical costs. Our current predicament shows that society needs other ways to cope with rising costs.
Artificial intelligence (AI) may be the answer. Technology has acted as a deflationary force before — microchips being a prime example. Today, in a world where inflationary shocks are the new normal, artificial intelligence can be a force to curb inflation.
back to the Future? Not this time
Productivity gains have kept inflation low for much of the past 25 years. I’m not just talking about labor productivity, I’m also talking about output. Every dollar invested leads to growth in output, much of it on the back of offshoring.
Reliance on cheap production capacity in China, Vietnam, India and elsewhere has been a key tool available to Western companies, and the movie is about to come to a screeching halt. Over the next 20 to 30 years, most inputs will lead to inflation, and our only real weapon against these inputs is artificial intelligence.
In some ways, the recession has already begun. From 2012 to 2019, the average annual productivity in the United States was below 1%, dragged down by the overall decline in net investment as a share of GDP, the slowdown in offshoring of manufacturing and services, and the reduction in benefits from automation. caught.
Going forward, businesses will have no choice but to rely on artificial intelligence and GenAI to increase productivity. In the long run, it may be the only—or at least the best—leverage available.
Even before GenAI took root, predictions of its impact on productivity were optimistic. McKinsey believes that artificial intelligence can increase corporate profits by US$4.4 trillion per year. (For context, the UK’s GDP is $3 trillion). Nielsen believes GenAI can increase labor productivity by 66%. However, no one really knows. These estimates are not as important as the role of artificial intelligence in specific industries, and these performances will vary.
Increases in productivity may be related to the degree of digitization achieved in each industry. Industries such as transportation, logistics and agriculture will not see the same growth as retail, technology, media and professional services.
A decade of artificial intelligence
Many companies are already starting to see the benefits of artificial intelligence. They rely on it not to replace human judgment but to eliminate heavy cognitive workload so people can work better, smarter, and more efficiently. It’s about keeping humans in the loop and accelerating the ability to test and learn through data-driven decision-making.
Our industry has been using artificial intelligence for nearly a decade, from delivering seamless end-to-end efficiencies in our supply chains and logistics to helping us manage our networks more efficiently through automation. We have been applying artificial intelligence in network construction and mapping optimal 5G coverage, just to name a few. More importantly, in customer service, artificial intelligence can help our employees spend less time searching for information and more time on personal interactions, solving customer problems and fine-tuning service content.
More broadly, artificial intelligence is reshaping the healthcare industry through advances in diagnostic imaging and the development of new treatments. In real estate, artificial intelligence is speeding up response times for property listing inquiries to support sales. On the investment side, artificial intelligence is opening up new research paths for improved analysis. These efficiencies, along with the networks and more sophisticated computing that enable them, will drive U.S. productivity gains over the next 20 to 30 years. Artificial intelligence is making this a reality, but getting there will be a significant challenge for society.
The road ahead is long and exciting
While many of the efficiency benefits of artificial intelligence are now evident, we are still far from realizing its full potential. Never in my life have I seen such a large gap between technology and adoption. The existing technology, especially around GenAI, is very complex. And adoption takes time. Just look at electric cars: They’ve been around since the 1800s, but have only recently begun to reach the mass market.
There is still much work to be done. For example, much of the value of artificial intelligence lies in specialized data sets in vertical models that do not exist or are still being constructed. This is a common problem among large companies that absorb billions of bits of data every day. Building a single platform with privacy security and data intelligence is no easy task.
But change is coming. Companies starting now or already starting their AI journey will be well-positioned to drive productivity gains that will be key to a low-inflation environment over the next 20 years.
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