AI is driving up US inflation! Memory chip prices have surged 200% in six months.

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The surge in artificial intelligence development is spreading from the tech industry to the broader economy, pushing up U.S. inflation pressures in an unexpected way.

In May, the overall U.S. inflation rate returned to above 4% for the first time since spring 2023. Aside from surging oil prices, the AI-driven boom in demand for memory chips is becoming an unignorable driver—software and computer accessories prices are up 14.5% year-on-year, a record high. Wolfe Research Chief Economist Stephanie Roth said: "The AI wave is pushing up overall inflation pressures in a significant way, and the disinflationary productivity dividend is still nowhere in sight."

Memory chips are a typical example of this round of price increases. With the large-scale construction of AI data centers, demand for RAM chips has soared, with prices jumping from $100 to $300 in six months, an increase of up to 200%. Since memory chips are widely embedded in consumer products such as mobile phones, computers, and cars, the price pressure is being transmitted from data centers to ordinary consumers.

This situation has put the new Fed Chair Walsh in a dilemma. Walsh had previously argued that AI would eventually increase productivity and ease price pressures. But Apollo Global Management Chief Economist Torsten Slok pointed out that the AI boom has a "definite inflationary effect" in the short term, and will become a key factor preventing Walsh from cutting rates quickly.

Memory Chip Prices Soar, Impact Spreads to Consumers

The surge in demand for memory chips driven by the AI data center construction boom is the core force behind this round of price shocks.

Chris Barber, who runs the IT services company "Cheaper Than a Geek" in Baltimore, has been in the computer industry for more than 25 years. He said that RAM chips that sold for $100 six months ago now go for a "ridiculous" $300, a jump of up to 200%. "Component prices are completely out of control—this is the worst price surge I have ever seen."

Bloomberg Economics' analysis of RAM price trends shows an average year-on-year increase of up to 237%, with the current shock expected to peak around February next year and to continue pushing up core inflation until 2027. As memory chips are embedded in a wide range of consumer products, price pressure is spreading from professional procurement to end consumers.

Michael Pearce from Oxford Economics said: "We think this will be an important factor in keeping core inflation elevated this year." He also noted that it remains uncertain "whether this is just another temporary shock or the start of a new supercycle in memory prices"—chip cycles have always been highly volatile, and once supply adjusts, prices may retreat quickly.

Data Center Construction Boosts Labor Demand, Wages and Inflation Heat Up in Tandem

Beyond memory chips, the AI data center construction boom is also pushing inflation via the labor market and energy demand. Large-scale data center construction has absorbed a large number of construction workers, electricians, and HVAC technicians, creating significant wage pressures in some industries and regions.

Chip McElroy, President of McElroy Manufacturing Inc. in Tulsa, Oklahoma, said his company is thriving, with the AI construction surge contributing about half of its growth. The employee count hit a record, surpassing 600, but there are still as many as 60 vacancies for welders, mechanics, and assembly technicians. "The labor market for what we need is really hot, and starting pay is clearly higher than a year ago."

Meanwhile, the massive power demands of data centers are also pushing up electricity prices. Fed Board Member Lisa Cook and St. Louis Fed President Alberto Musalem both recently pointed out that the AI boom is raising prices through various channels, including chips and electricity.

High Inflation Intensifies Policy Pressure, Rate Cuts Constrained

Persistent inflation pressures are triggering chain reactions on multiple levels. For American households not yet fully recovered from the post-pandemic inflation shock, a new round of price hikes is further eroding real purchasing power.

On the monetary policy front, Slok made it clear that the simultaneous rise in semiconductor prices, energy prices, and labor costs will restrict the Fed’s room to cut rates. Walsh had hinted previously that quick rate cuts were possible, but today's inflation picture is challenging that expectation.

Barber is not optimistic about when prices will peak. "I see no signs of a peak," he said. "It's a bit worrying."

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