AI infrastructure spending drives US inflation higher as chip and electricity prices surge

Massive AI spending is driving up prices on laptops and electricity, as the Fed watches closely

AI spending is lifting prices for consumer electronics Just four large tech companies -- Google parent Alphabet, Amazon, Meta Platforms, and Microsoft -- are expected to invest $720 billion this year, mostly on data centers. Those data centers use a lot of semiconductors, and chip supplies have run low. As a result, economists at JPMorgan Chase estimate that the cost of some computer memory chips will have soared by as much as 400% between 2024 and the end of this year. Americans are already seeing higher prices for a range of consumer electronics, including laptops, smartphones, video game consoles, and computers. Electricity prices are also jumping as data centers absorb a growing share of new electrical capacity. In a high-profile announcement last month, Apple announced it was boosting prices for laptops and iPads by about 15% to 25%. A topline MacBook will now cost $1,999, up from $1,699. Many analysts expect price hikes will come for iPhones next. "The rapid expansion of AI data centers has created an extraordinary surge in demand for memory and storage," Apple said in a statement. "We have never seen a component price increase this much, this quickly." On the same day, Microsoft announced that the price of its Xbox video game console will increase $100 by Aug. 1, citing higher prices for memory chips. Sony is also charging more for the PlayStation, while Dell Computer and HP have raised prices for their laptops. A "wave of AI-related cost pressures spilling over into consumer prices is still in the early stages of building," analysts at investment bank Evercore ISI recently wrote. It's the latest in a series of waves that have boosted inflation The impact on broader measures of inflation may be relatively modest, with many economists forecasting that AI investment will boost core consumer prices, which exclude food and energy, by roughly a half-percentage point by the end of this year. Still, that could be enough to offset declining prices elsewhere, as the impact of President Donald Trump's tariffs continues to fade and as rental costs cool. Core inflation, according to the Fed's preferred measure, was 3.4% in May and some economists now expect it may decline only slightly by the end of the year, remaining well above the Fed's 2% target. The boost from AI may prove temporary, but it follows previous waves of higher prices stemming from tariffs and the gas price spike resulting from the Iran war. The Fed typically "looks through," or ignores, temporary price increases, rather than boosting rates to fight them, but an ongoing series of temporary price shocks could threaten to create more sustained inflation, which has already been above the Fed's target for more than five years. "In isolation one or two such shocks is perhaps transitory, something they're willing to live with," said Abiel Reinhart, an economist at J.P. Morgan. "A sustained series of shocks, or a wider range of shocks, becomes more concerning to them." Federal Reserve officials have increasingly focused on AI Fed policymakers are increasingly focused on AI's inflationary impact. Kevin Warsh, who took over as chair May 22, has said he believes that over time AI will make the U.S. economy more efficient, which should reduce inflation even as growth accelerates. He acknowledged in remarks July 1, however, that AI investment is now boosting demand, but declined to speculate on how inflationary the impact would be. Yet many Fed officials worry that demand for AI-related gear will continue to outstrip available supply, a recipe for persistent price increases. "If this creates a sustained impulse to demand relative to supply in inflation, I do think that's the kind of situation where you don't look through this," John Williams, president of the Federal Reserve Bank of New York, said Thursday. Williams is also vice chair of the Fed's rate-setting committee. Williams has supported keeping rates unchanged, but his comment suggests that under some scenarios he could support a hike. According to the minutes of the Fed's June 16-17 policy meeting, released Wednesday, many other officials share Williams' concerns. Another channel through which AI could raise inflation is through its huge demand for electricity, which has caused many utilities to raise prices. Power companies throughout the U.S. are adding more capacity, an expensive step that can also boost electricity costs. According to the government's consumer price index, electricity prices rose 5.9% in May compared with a year earlier, a bigger increase than overall inflation, which was 4.2%. After a pandemic spike, electricity price gains had dropped back to about 2% annually in early 2025. While prices for computer chips could peak this year and then decline, experts expect electricity demand from AI will push up utility costs into 2028 or even beyond. In February, economists at Goldman Sachs forecast that electricity prices will rise 6% this year and next, and an above-average 3% in 2028. "We do know what effect AI is having on inflation now, and it is inflationary, not deflationary," Dario Perkins, an economist at TSLombard, wrote this week.

Goldman Sachs sees new inflation pressure from AI

It's safe to say that inflation in the U.S. this year felt a lot like a game of whack-a-mole. Just as one pressure point starts to ease, another pops up somewhere else. The turnaround many had hoped for never arrived. Instead, the Fed's preferred inflation gauge, PCE, rose to 4.1% in May from 2.9% in February, according to CBS News, while core PCE remained stubbornly above the Fed's target. However, the market's primary catalyst, artificial intelligence, was supposed to swoop in and save the day like Superman. Many, especially those reading Nvidia reports like gospel, expected the AI boom to make the economy faster, smarter, and cheaper. Instead, according to a Business Insider report, Goldman Sachs warns it may first show up as another inflation shock, with Americans helping pay the bill through pricier software, power, and tech hardware. Why Goldman Sachs sees an AI inflation problem for Americans Goldman Sachs warns that the relentless AI buildout will come at a much higher cost to Americans in terms of inflation. What the AI buildout has done is stoke demand for memory chips, software, and electricity, among other things, amid supply constraints. In Goldman's view, the pressure is showing up in the Fed's preferred inflation gauge. Megan Peters, an economist at the bank, estimates AI is lifting U.S. core PCE inflation by about 20 basis points a year. By year-end, that drag could more than double, with the boost to core PCE reaching 50 basis points. The impact is far greater than the likely effect in Canada, Australia, Europe, the U.K., and Japan, where Goldman sees an average 10-basis-point increase. "While not completely negligible, these effects are far below the 50bp peak we estimate for U.S. PCE, suggesting that for the most part, AI-driven inflation is a U.S. story," Peters wrote. The pressure stems from three major factors: soaring memory and software prices, and rising electricity demand. How memory-chip prices are feeding the inflation warning The first pressure point is memory, something iPhone fans are probably tired of hearing about, as are video gaming fans like me. "Unfortunately, price increases are unavoidable," CEO Tim Cook said in an exclusive Wall Street Journal interview published on June 17, 2026. Goldman Sachs concurs with Cook that the tremendous demand for AI hardware is driving up the cost of key components, which flow into consumer technology, business software, and broader digital services. For example, Keepa data shows Corsair Vengeance DDR5 RAM 32GB on Amazon surged from about $110 to $415 over the past year, a nearly 277% increase. In a Bank of America note shared with me, analysts also say that memory now represents roughly 35% to 40% of cloud AI capex, two to three times the historical level. They also doubled down on Micron stock, assigning a $1,550 price target. That said, Goldman expects the pressure to peak before the end of 2026. Prices in that category could be rising at a 30% year-over-year pace by November. The U.S. is more exposed because software and accessories account for about 1% of PCE inflation, compared to less than 0.5% in other developed economies. Why software may become the next AI price shock The second big inflationary shock comes from software, where AI is being layered into products that businesses and households already use. Once AI tools are a pivotal part of the whole package, the cost can be passed through in subscription prices rather than shown as a separate add-on. Taking Microsoft as a clear example, the tech giant recently moved Copilot deeper into Microsoft 365, while commercial suite prices are rising, including Office 365 E3 to $26 from $23 and Microsoft 365 E3 to $39 from $36 starting July 1, 2026, Agolution reported. Google made a similar move with Workspace, announcing that Gemini AI is now included in the Business and Enterprise plans. How data centers strain electricity costs Goldman Sachs' third big inflation wave is electricity, and it's probably the one that's hardest to ignore. Naturally, AI needs a ton of data centers, cooling systems, and chips, as well as a power grid that's capable of handling a much heavier load. The report identified that the average price of one kilowatt-hour of electricity in a U.S. city rose to $0.19 in May, up about 27% from May 2022, according to the Bureau of Labor Statistics. That adds another painful bill to an already uncomfortable stack. Goldman estimates data centers could account for about 11% of total U.S. power demand by the end of the decade, roughly double today's roughly 6% share. Though it's a huge challenge on its own, the AI buildout is happening at a time when energy markets are already tense, with oil prices still up sharply year-to-date amid geopolitical supply fears. The fragile ceasefire between the United States and Iran has now collapsed, reviving fears of another spike in oil prices after prices had declined over the past several weeks. However, over the long term, investors are latching onto the idea that AI will be disinflationary and boost productivity. Cathie Wood talked about it during ARK Invest's January "In The Know" webcast. "Productivity-driven growth is associated with falling inflation," she said. Nevertheless, Goldman's warning is that the bill may come first, while the benefits arrive later. The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc. This story was originally published July 12, 2026 at 4:17 PM.

What's the AI hit to U.S. inflation? By Investing.com

Investing.com -- Artificial intelligence is adding to U.S. inflation rather than reducing it, with the current investment boom estimated to contribute roughly 0.4 percentage points to annual inflation in 2026, according to CIBC Capital Markets. The report argues that the productivity gains widely expected from AI are likely to come later, but the costs of building the necessary infrastructure are already feeding into prices. The analysis attributes the direct inflation impact to soaring investment in data centers, computer equipment, and electricity generation. Demand for chips, software, construction materials, trucking services, and power has lifted prices in information processing equipment and utilities above their historical averages. As of May, those components alone were estimated to add about 0.3 percentage points to U.S. PCE inflation, with additional technology price increases yet to fully appear in official data. Beyond higher equipment costs, AI is also making the broader economy run hotter. Investment in information technology, software, research and development, and data center construction is projected to contribute 0.4 percentage points to real GDP growth in 2026. Rising wealth generated by AI-related stocks is expected to add another 0.2 percentage points through stronger consumer spending, meaning AI could account for nearly 30% of U.S. economic growth this year. That stronger growth has reduced economic slack, creating additional inflation pressure. The report estimates AI has widened the output gap sufficiently to add another 0.13 percentage points to annual inflation this year, bringing AI's combined direct and indirect contribution to around 0.4 percentage points. Even so, it noted AI is only one factor keeping inflation above the Federal Reserve's 2% target, alongside the Iran conflict's impact on energy prices, tariffs, and persistent services inflation. Looking ahead, inflationary pressure from AI could begin easing in 2027 as the pace of capital spending moderates and businesses realize greater productivity gains from AI tools. Until then, policymakers face a difficult balancing act as a resilient labor market and above-target inflation leave the Federal Reserve with limited room to lower interest rates.