Raising interest rates to combat technology-driven inflation would be a mistake. Tech inflation is largely supply-side, not demand-driven. The high cost of data centres, AI hardware, and cloud services stems from global shortages, not excessive Australian spending. Monetary policy cannot create more semiconductors or faster internet cables.
Hiking rates would simply crush the very sectors that are driving productivity gains and future growth. Australia needs more tech investment, not less. Higher borrowing costs would deter capital spending on data centres, renewable energy infrastructure, and digital transformation projects. That would worsen the supply constraints over the medium term, potentially fuelling even higher tech costs down the line.
The RBA's own forecasts show that services inflation is easing. Tech-related price increases may prove more temporary than feared as new data centre capacity comes online and chip production expands globally. An overreaction could cause unnecessary economic damage, throwing people out of work and slamming the housing market.
Small and medium businesses are already struggling. They cannot absorb another rate increase. For them, higher tech bills are a cost of doing business in a digital age, not a sign of a overheating economy. Punishing them with higher rates will lead to closures and job losses, especially in retail, hospitality, and professional services.
Furthermore, global inflationary pressures from tech are easing. The US Federal Reserve has signalled it may cut rates later this year. If the RBA hikes when the world is easing, the Australian dollar would strengthen, hurting export competitiveness and slowing the economy unnecessarily.
A better approach would be targeted government measures: accelerating approvals for energy infrastructure to lower power costs for data centres, subsidising domestic semiconductor design, and investing in digital skills. Monetary policy is too blunt an instrument for a problem that requires industrial and technology policy.