Washington – American consumers—and the Federal Reserve—are getting another high-cost headache.
The torrent of investment in data centers—likely to exceed $700 billion this year—to boost artificial intelligence has made memory chips, computer processors and other equipment, as well as electricity, more expensive. Economists expect it to continue putting upward pressure on inflation at least until the end of this year.
Although it won’t be as big a rebound as what occurred between 2021 and 2023, when inflation peaked at 9.1%, the massive spending on AI will likely keep prices rising faster than the Federal Reserve would like. Those increases could lead the central bank to raise its key interest rate later this year to cool spending and reduce inflation. Higher Fed rates typically raise borrowing costs for auto loans, mortgages and business loans.
US central bank officials will closely monitor the June inflation report, due out on Tuesday, for further signs of AI’s impact on prices. Last month’s inflation likely moderated as gasoline prices have fallen after a ceasefire was reached between the United States and Iran, although it is now unclear whether that trend will continue as the countries have resumed fighting.
Spending on AI is driving up electronic device prices
Only four big tech companies — Google parent Alphabet; Amazon; Meta Platforms; and Microsoft—invest $720 billion this year, mostly in data centers.
Those data centers use a lot of semiconductors, and the supply of chips has been reduced. As a result, economists at JPMorgan Chase estimate that the cost of some computer memory chips will have increased by up to 400% between 2024 and the end of this year.
Americans are already seeing higher prices on a range of electronics such as laptops, smartphones, video game consoles and computers. Electricity prices are also rising, as data centers absorb an increasing proportion of new electrical capacity.
In an announcement last month, Apple said it was raising prices for laptops and iPads by about 15% to 25%. A high-end MacBook will now cost $1,999, up from $1,699.
Many analysts expect the next price increases to be for iPhones.
“The rapid expansion of AI data centers has created an extraordinary increase in demand for memory and storage,” Apple said in a statement. “We have never seen the price of a component rise so much, so quickly.”
That same day, Microsoft announced that the price of its Xbox video game console will increase by $100 by August 1, citing higher prices for memory chips. Sony is also charging more for the PlayStation, while Dell Computer and HP have raised the prices of their laptops.
“AI-related pressures on consumer prices are still in the early stages of formation,” analysts at investment bank Evercore ISI wrote.
Recent trends have boosted inflation
The impact on broader measures of inflation could be relatively muted, with many economists predicting that investment in AI will raise 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 moderate. Core inflation, by the Fed’s preferred measure, was 3.4% in May, and some economists now expect it to decline only slightly by the end of the year, remaining well above the Fed’s 2% target.
The AI boost could prove temporary, but it follows previous price increases stemming from tariffs and the war with Iran. The Fed typically ignores temporary price increases rather than raising rates to combat them, but a continued series of temporary hikes could threaten to 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 transitory, something they are willing to live with (but) a sustained series of shocks, or a broader range of shocks, is more worrying,” said Abiel Reinhart, an economist at JP Morgan.
The Federal Reserve begins to focus on AI
Fed policymakers are increasingly focusing on the inflationary impact of AI. Kevin Warsh, who took over as head of the central bank on May 22, has said he believes AI will eventually make the U.S. economy more efficient, which should reduce inflation even as growth accelerates.
However, he acknowledged in statements on July 1 that investment in AI is driving up demand right now, but avoided speculating on how inflationary the impact would be.
Still, many Fed officials fear that demand for AI-related equipment will continue to outstrip available supply, a recipe for persistent price increases.
“If this creates a sustained boost in demand relative to supply and that translates into inflation, I do think that’s the kind of situation we won’t be able to ignore,” said John Williams, president of the Federal Reserve Bank of New York. Williams, who is also vice chairman of the Fed’s rate-setting committee, has supported keeping rates unchanged, but his comment suggests that under some scenarios he could support an increase.
According to the minutes of the Fed’s June 16-17 monetary policy meeting, released Wednesday, many other officials share Williams’ concerns.
Another channel through which AI could raise inflation is its enormous demand for electricity, which has led many utilities to raise prices. Power companies across the United States are adding more capacity, a costly step that can also raise electricity costs.
According to the government’s consumer price index, electricity prices rose 5.9% in May compared to a year earlier, a bigger increase than overall inflation, which was 4.2%. After a spike during the pandemic, electricity price increases had returned to around 2% annually by early 2025.
Although computer chip prices could peak this year and then decline, experts estimate that AI-linked electricity demand will drive up utility costs until 2028 or even later. In February, Goldman Sachs economists forecast that electricity prices will rise 6% this year and next, and 3% in 2028.
“We do know what effect AI is having on inflation now, and it is inflationary, not disinflationary,” said Dario Perkins, an economist at TS Lombard.
This story was translated from English to Spanish with an artificial intelligence tool and was reviewed by an editor before publication.