WASHINGTON (AP) — American consumers — and the Federal Reserve — are being hit with another blow Headache with high costs.
The surge in investment in data centers – probably over $700 billion This year, the use of artificial intelligence has made memory chips, computer processors and other devices, as well as electricity, more expensive. Economists expect inflation to continue rising at least until the end of this year.
While there won’t be as big an increase as in 2021-2023, when inflation peaked at 9.1%, massive AI spending is likely to cause prices to rise faster than the Federal Reserve would like. Such increases could prompt the central bank to do so raise the key interest rate later this year to cut spending and lower inflation. Higher Fed interest rates often increase borrowing costs for auto loans, mortgages and business loans.
Fed officials will closely watch the June inflation report, due out Tuesday, for further signs of AI’s influence on prices. However, inflation may have cooled last month as gasoline prices fell following the conclusion of a ceasefire between the US and Iran whether this trend will continue is unclear now that the US and Iran have resumed fighting.
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AI spending increases consumer electronics prices
Only four major technology companies — Google parent Alphabet, Amazon, Meta Platforms and Microsoft — are expected to invest $720 billion this year, mostly in data centers.
These data centers use a lot of semiconductors and chip supplies have been running low. As a result, economists at JPMorgan Chase estimate that the cost of some computer memory chips will have increased 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 devices, including laptops, smartphones, video game consoles and computers. Electricity prices are also rising as data centers absorb a growing share of new electricity capacity.
In a high-profile announcement last month Apple announced a price increase for laptops and iPads by around 15 to 25%. A top-of-the-line MacBook now costs $1,999 (was $1,699).
Many analysts believe iPhone price increases will be next.
“The rapid expansion of AI data centers has led to an extraordinary increase in demand for memory and storage,” Apple said in a statement. “We have never seen component prices rise so much and so quickly.”
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On the same day, Microsoft announced that the price for it Xbox video game Console will increase $100 through August 1st due to higher memory chip prices. Sony also charges more for the PlayStationwhile Dell Computer and HP have increased the prices of their laptops.
“A wave of AI-related cost pressures impacting consumer prices is still in its early stages of building,” analysts at investment bank Evercore ISI recently wrote.
It is the latest in a series of waves that have boosted inflation
The impact on broader measures of inflation is likely to be relatively small, with many economists predicting that AI investments will boost core consumer prices, which exclude food and energy, by about half a percentage point by the end of this year.
Still, that could be enough to offset falling prices elsewhere as the impact of President Donald Trump’s tariffs continues to fade and rental costs fall. Core inflation, according to the Fed’s preferred measure, was 3.4% in May Some economists now expect it to decline only slightly through the end of the year and remain well above the Fed’s 2 percent target.
The boost from AI may prove temporary, but it follows previous waves of higher prices due to tariffs and the rise in gas prices resulting from the Iran war. Typically, the Fed “looks past” or ignores temporary price increases rather than raising interest rates to combat them. However, a sustained series of temporary price shocks could lead to more sustained inflation, which has already been above the Fed’s target for more than five years.
“In isolation, one or two such shocks may be temporary, something they want to live with,” said Abiel Reinhart, an economist at JP Morgan. “A sustained series of shocks or a wider range of shocks becomes more worrying for them.”
Federal Reserve officials have increasingly focused on AI
Fed policymakers are increasingly focused on the inflationary impact of AI. Kevin Warsh, who took over as chairman on May 22, said he believes AI will make the U.S. economy more efficient over time, which should lower inflation even as growth accelerates.
He admitted Comments July 1stHowever, he said AI investments are now driving demand, but declined to speculate on how inflationary the impact would be.
Still, many Fed officials fear that demand for AI-related equipment will continue to outstrip available supply, which is one reason for continued price increases.
“If this creates a sustained stimulus to demand relative to supply in inflation, then I think that’s the kind of situation where you can’t see through that,” John Williams, president of the Federal Reserve Bank of New York, said Thursday. Williams is also vice chairman of the Fed’s Interest Rate Committee. Williams has advocated keeping rates unchanged, but his comments suggest he could favor a rate hike in certain scenarios.
According to the minutes of the Fed’s monetary policy meeting on 16-17. June Published Wednesdaymany other officials share Williams’ concerns.
Another channel through which AI could boost inflation is the huge demand for electricity, which has led many energy suppliers to increase prices. Utilities across the U.S. are expanding capacity, a costly move that can also drive up electricity costs.
According to the government’s consumer price index, electricity prices rose 5.9% in May from a year earlier, a sharper rise than overall inflation, which stood at 4.2%. After a pandemic-related increase, electricity price increases fell back to around 2% per year at the beginning of 2025.
While computer chip prices could peak and then decline this year, experts predict that demand for electricity from AI will drive up electricity costs through 2028 or even beyond. In February, economists at Goldman Sachs predicted that electricity prices would rise 6% this year and next, and an above-average 3% in 2028.
“We now know what impact AI has on inflation, and it is inflationary, not deflationary,” Dario Perkins, an economist at TSLombard, wrote this week.
https://apnews.com/article/ai-inflation-federal-reserve-434f02e62a02f9b92e57995d9375df57
