Has a new productivity boom begun?

The resurgence in productivity growth is mainly a cyclical response to the tightness of the labour market rather than a sign that the AI revolution is already bearing fruit. Nevertheless, that still implies scope for productivity growth to remain relatively strong, and we suspect it will end up stabilising around the 1.5%-2.0% trend that had emerged immediately before the pandemic. With faster productivity growth having played an important role in allowing inflation to ease, even as demand growth reaccelerated, this implies that inflation can be sustained at the 2% target.