Inflation has come down from last year’s peak, but as the latest figures show, it’s still not as low as anyone would like. The Fed has also raised interest rates 11 times and kept them at 23-year highs. Will that be enough? Perhaps, but some economists say we’re in a post-crisis phase. new era From high inflation caused by global trends.
Whether permanently or temporarily, costs are rising due to multiple forces, including offshoring and reshoring initiatives, ongoing trade tensions with China, the shift to green energy, labor shortages, rising wages, and an aging population that is driving up health care costs. Our current predicament shows that society needs other ways to combat rising costs.
Artificial intelligence may be the answer. Technology has acted as an anti-inflationary force before—the microchip is a great example. Today, AI could act as an anti-inflationary force in a world where inflationary shocks are the new normal.
Back to the future? Not this time.
For most of the past 25 years, productivity gains have kept inflation low. And I’m talking not just about labor productivity, but also about output. Every dollar of input has grown in output, and much of that growth has come from offshoring.
Relying on cheaper production capacity in places like China, Vietnam, India and elsewhere has been a major tool available to Western companies, and that movie has come to an abrupt end. Over the next 20 to 30 years, most inputs will be inflationary, and the only real weapon we have to counter them is artificial intelligence.
In some ways, the recession has already begun. From 2012 to 2019, the average annual productivity rate in the United States was 1.2%. Less than 1%, Growth in the global economy has slowed sharply due to a general decline in net investment as a percentage of GDP, a slowdown in the offshoring of manufacturing and services, and the decline in gains from automation now that many of the initial low-cost opportunities have been seized.
In the future, companies will have no choice but to rely on AI and genomic AI to boost productivity. In the long run, this may be the only lever available—or at least the best.
Even before GenAI took hold, predictions about its impact on productivity were optimistic. McKinsey believes AI could add $4.4 trillion In corporate profits annually. (For context, the UK’s GDP is $3 trillion.) Nielsen believes GenAI could boost labor productivity by 66%. No one really knows, though. These estimates aren’t as significant as what AI can do for specific industries—and those performances will vary.
Productivity gains are likely to be tied to the level of digital transformation each industry achieves. Sectors such as transportation and logistics and agriculture will not see the same upturn as retail, technology, media and professional services.
A decade of artificial intelligence
Many companies are beginning to see the benefits of AI. They’re not counting on it to replace human judgment, but to remove the cognitive burden so people can work better, smarter, and more efficiently. It’s about bringing humans into the process and accelerating the ability to test and learn through data-driven decision-making.
Our industry has been using AI for nearly a decade, from providing end-to-end efficiencies in supply chain and logistics to helping us manage our network more effectively through automation. We’ve applied AI to building our network and mapping out the best 5G coverage, to name a few. Furthermore, in customer service, AI is helping our employees spend less time searching for information and more time interacting personally, resolving issues with customers, and fine-tuning service offerings.
More broadly, AI is reshaping the health care industry through advances in imaging diagnostics and the development of new treatments. In real estate, AI is speeding up response times for property listing inquiries to support sales. In investing, AI is opening new research avenues to improve analytics. These efficiencies, along with the networks they enable and even more advanced computing, will drive productivity gains in America over the next 20 to 30 years. AI is making all of this happen, but it will be a significant challenge for society to succeed.
A long and exciting road ahead.
While many of the efficiency benefits of AI are clear today, we are still far from realizing its full potential. I have never seen a bigger gap between technology and adoption. The technology available is already incredibly advanced, especially when it comes to AI. Adoption will take time. Consider electric cars: they have been around since the 19th century, but they have only recently begun to enter the mass market.
There is a lot of work to be done. For example, most of the value of AI lies in specialized datasets in vertical models that either don’t exist today or are still being built. This is a widespread problem among large companies that ingest billions of bits of data every day. Building a single platform that is privacy-safe and data-smart is no small feat.
But change is coming. And companies that start their AI journey now—or have already started—will be well positioned to drive the productivity gains that will be key to a low-inflation environment over the next 20 years.
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