AI Hardware Demand Drives Core Inflation Up 0.4 Percentage Points

The Federal Reserve Bank of Minneapolis found that artificial intelligence demand for memory and computer hardware increased core inflation by approximately 0.4 percentage points as of July. This impact is comparable to the 0.2 to 0.4 percentage point increase caused by tariffs imposed by President Donald Trump early last year.

Core personal consumption expenditures inflation reached 3.3% year-over-year through July, marking the highest level since 2023. The report identifies a sharp reversal in the pricing of information processing and video equipment, which surged 12.2% year-over-year. This trend contrasts with the period between 2015 and 2019, when prices for such equipment typically declined by 6.5%.

This phenomenon, described as chipflation, stems from massive AI hardware investments by major technology firms. These costs have trickled down to consumers through price hikes for electronics from companies such as Lenovo, Dell, and HP. Apple specifically raised prices for MacBooks and iPads by 15% to 25% in June.