{"id":948037,"date":"2026-10-31T21:52:10","date_gmt":"2026-10-31T21:52:10","guid":{"rendered":"https:\/\/www.newsbeep.com\/au\/948037\/"},"modified":"2026-10-31T21:52:10","modified_gmt":"2026-10-31T21:52:10","slug":"major-trend-in-aussie-suburbs-that-is-making-interest-rates-keep-going-higher","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/au\/948037\/","title":{"rendered":"Major trend in Aussie suburbs that is making interest rates keep going higher"},"content":{"rendered":"\n

From the headlines to your work life, or perhaps even changes in your local community, it’s impossible to escape artificial intelligence and the associated infrastructure build out<\/a>. Especially if you have a mortgage. <\/p>\n

As the race to build the computing infrastructure to usher in better and better AI models continues to ramp up, a technology that was promised by many prognosticators to ultimately be disinflationary, is anything but in the early stages. <\/p>\n

From tradies to money markets, the AI building boom is soaking up more and more resources<\/a> of the global economy as data centres proliferate around Australian suburbs. And that’s hitting just about everyone when it comes to borrowing costs. <\/p>\n

RELATED <\/p>\n

According to an analysis from the US Federal Reserve, there has been a meteoric rise in spending on physical AI data centre infrastructure, the supporting electricity infrastructure and the computing hardware to power it. <\/p>\n

Since the first snapshot in their analysis taken in 2021, the level of expenditure on physical data centre infrastructure has risen by roughly six fold. <\/p>\n

Meanwhile, expenditure on computers and peripheral equipment has risen by $337.8 billion a year ($238.5 billion USD) a year, or 163.8 per cent, since 2023. <\/p>\n

\"Ai<\/a> A boom like no other. \u00b7 US Fed <\/p>\n

This trend, pictured in the graph above, has implications for the rate of inflation. <\/p>\n

In the words of former RBA economist and now Chief Economist at Challenger, Jonathan Kearns: <\/p>\n

“For now the investment boom (in AI) is inflationary – there’s greater aggregate demand but no increase in productivity yet,” he wrote recently. <\/p>\n

“That’s a challenge for central banks facing an oil shock.” <\/p>\n

MORE: Up close with the data centres popping up in Aussie suburbs<\/a> <\/p>\n

This was reality was echoed in an analysis by Chief Macro Strategist Kieran Davies at<\/a> Aussie fund Coolabah Capital: <\/p>\n

“Consistent with the US experience, we estimate that tech prices are up 3.7% over the past year, adding about 0.2pp (percentage points) to annual core inflation. This contrasts with falling tech prices in the pre-Covid years, when tech goods subtracted an average 0.3pp (percentage points) from annual core inflation,” he wrote. <\/p>\n

With domestically derived inflation (goods and services from Australia) still at a highly elevated 4.3 per cent and the RBA’s preferred inflation metric the trimmed mean running at 3.6 per cent, significantly above their 2 to 3 per cent target range, the additional upward pressure stemming from the AI buildout could hardly have come at a worse time. <\/p>\n

Story continues <\/p>\n

The bond market <\/p>\n

For the longest time, the rise of AI and the expansion of data centre infrastructure was mostly funded by the cashflow of America’s tech titans, with total annual cash \\flows exceeding $992 billion ($700 billion USD) a year. <\/p>\n

But as the AI race continues to intensify, the tech giants and the other companies engaged in the buildout are increasingly turning to debt in order to fund it. <\/p>\n

According to an analysis from Dealogic, around $595 billion ($420 billion USD) in dollar denominated bonds have been issued so far this year, up more than 80 per cent from the 2025 total and up over 450 per cent from 2024. <\/p>\n

\"The<\/a> The build out is increasingly being funded by corporate debt. \u00b7 Dealogic\/Goldman <\/p>\n

According to a Goldman Sachs report earlier this year, a total of $10.8 trillion ($7.6 trillion USD) is expected to be spent on AI data centres, infrastructure and computing equipment in the next five years. <\/p>\n

At a time when the bond market is already challenged by the issuance of bonds by government’s funding deficits, this is putting additional upward pressure on bond yields as the supply and demand balance tilts. <\/p>\n

As an example of the trend, data from Apollo Asset Management showed that in February the level of demand for hyperscaler bonds (Amazon, Alphabet, Oracle etc.) was roughly five times the amount of issuance offered, which has since fallen to less than twice the issuance offered just five months later in July. That means lenders demand a higher price to lend. <\/p>\n

\"Corporate<\/a> Lenders will be increasingly asking for a better return. \u00b7 Apollo <\/p>\n

This has potentially major implications for the bond market if current trends continue, with higher interest rates likely to be demanded on those corporate bonds. <\/p>\n

The true price of AI <\/p>\n

All indications are that the AI buildout is set to continue to place upward pressure on bond yields, maintaining pressure on interest rates. <\/p>\n

This leaves central banks, including the RBA in a challenging position, particularly given the high probability of a continued energy price shock stemming from the wars in the Middle East. <\/p>\n

In the long term, the outlook will prove fascinating. <\/p>\n

If AI fulfils even a fraction of its promise, it will change the world and enhance productivity, potentially acting as a disinflationary force, albeit with a simultaneous reshaping of the labour force for white collar workers. <\/p>\n

But that particular data is still slow to truly show up. <\/p>\n

Get the latest Yahoo Finance news – follow us on Facebook<\/a>, LinkedIn<\/a> and Instagram<\/a>. <\/p>\n

\"A<\/a> A sign outside a home opposing the construction of the Goodman Group data center in the Lane Cove area of Sydney, Australia, on Saturday, Oct. 24, 2026. \u00b7 Bloomberg