The Reserve Bank is concerned that the recent explosion in data centre investment could compete with Australian businesses for workers and resources, making its fight against inflation harder and contributing to interest rates staying higher for longer.
Economists say the RBA is right to be worried, given the investments are occurring at a time when Australia has little capacity to absorb higher demand for energy, electricians and construction workers.
The tech sector invested a record $12.3 billion in equipment and machinery over the past year, and the world’s most valuable AI company, Anthropic, plans to buy at least 1.4 gigawatts of capacity from Australian data centres that will cost up to $21.6 billion to build.
Minutes from the RBA’s meeting in June, when it held the cash rate at 4.35 per cent, reveal the board thinks data centres could “exacerbate capacity pressures and skills shortages in other parts of the economy”.
“Private business investment had been much stronger than expected, largely driven by investment in data centres,” the minutes said.
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Data centres are used to power the global rollout of artificial intelligence, and require huge amounts of space, water and energy to operate.
The Albanese government has welcomed data centre investment, given its contribution to economic growth, but has also signalled it plans to take a more interventionist approach to AI.
Husic slams data centre gold rush
The Australian Financial Review reported that Labor may consider imposing stricter requirements on data centre operators, including forcing them to provide financial benefits to local communities where they set up operations.
On Tuesday, Labor MP and former industry minister Ed Husic slammed the data centre gold rush, saying it was drawing workers away from the pressing national priority of building new homes.
Husic, who was Labor’s industry minister during the last term of government before being ousted in a factional coup last year, said people needed to be aware of the real cost of data centres, which he said were being built to satisfy investor valuations, not real demand.
“The biggest nation-building project of the moment is to build more homes,” he said.
“This is a must; we’ve rightly set an aspiration of building 1.2 million homes by 2030, and we have our work cut out for us in a climate where we’re 90,000 construction workers short.
“I’d urge the government to crunch the numbers and determine: can we build the homes we need, while satisfying the demands of US tech to build these data centres, plus all the renewable energy supply required to support them?
“If we can’t manage all that, we need to pump the brakes on the rush to build these data centres.”
Investment by the tech sector into equipment and machinery reached a record $6 billion in the March quarter of 2026. This was 11 per cent of all business investment, well above its usual 1 to 5 per cent.
The RBA said recent data centre investment was higher than expected, and it could lead to short-term “capacity pressures”, which is when the prices of a business’s inputs are bid up because of a spike in demand, without a corresponding increase in supply, feeding into inflation.
“The RBA is right to be worried,” said Nik Dawson, economist and data director of policy think tank The Burning Glass Institute.
“You can import the chips, but you can’t import the wiring. Every imported server still needs Australian electricians, plumbers and technicians to install and cool it, and that workforce takes a four-year apprenticeship to grow. Demand moved in months. Supply moves in years.”
Dawson estimates that the Greater Western Sydney region, a hotbed of $14.2 billion in planned data centre investment, has a pool of about 6000 electricians, and data centres will need about 2300 of them.
Data centres require electricians to install high-voltage servers, plumbers to set up their liquid cooling systems, and construction workers, along with welders and crane operators, to construct the building.
It could also affect lawyers, project managers and engineers, given the legal and logistical complexity of data centre construction.
The RBA said the neutral cash rate – which is the interest rate that is neither stimulating nor slowing economic growth – was a “little higher” now because of global investment into the energy transition, defence and data centres.
The neutral rate is considered the sweet spot for monetary policy, and where interest rates return when inflation is at normal levels. However, the RBA board emphasised that estimating the neutral rate was “uncertain” and not a direct guide for monetary policy.
Competition for available savings
A jump in investment can increase the neutral rate by absorbing capital from other sources. This competition for available savings means lenders can charge higher interest rates to borrowers.
In the three years since the release of ChatGPT in November 2022, Australia has invested more in data centres than in the previous 12 years combined.
“This investment comes at a time when the economy has very little capacity to absorb it,” said Barrenjoey’s head of economic forecasting, Johnathan McMenamin. “The scale of the investment is so large that it is drawing down on the economy’s ability to meet demand.
“This means it will take longer to get the economy back to balance and inflation will likely prove more persistent than the RBA expects.”
A slim majority of economists surveyed by the Financial Review said the RBA would hold the cash rate at 4.35 per cent this year, before a cut sometime in 2027. But McMenamin still sees it lifting interest rates in August, which would be the fourth rate rise this year.
The annual trimmed mean inflation rate, which is the RBA’s preferred measure of underlying price pressures, rose to 3.6 per cent in May. It is now the equal-highest core inflation rate among major developed economies.
“The RBA and ourselves already see the demand side of the economy running ahead of the supply side. So any additional add to demand, especially something that is not cyclically sensitive to rates, means the economy is further away from balance,” McMenamin said.
The RBA board noted that although data centre construction relied heavily on imported chips and construction material, it also required domestic inputs, such as water, labour, land and energy.
“While very little computer hardware is manufactured in Australia, the development, construction and operation of data centres rely heavily on domestic resources,” said EY chief economist Cherelle Murphy.
She said construction prices had risen 4.2 per cent in the year to March 2026, up from 2.2 per cent in June 2025.
“Data centre projects typically utilise local developers, construction firms and civil contractors, while the energy they consume is sourced within Australia,” said Murphy.
Source: https://www.afr.com/policy/economy/rba-flags-data-centre-boom-as-new-threat-in-inflation-fight-20260706-p60cvj