AI Hardware Demand Matches Tariffs in Driving U.S. Inflation

AI's inflationary impact rivals trade policy

Artificial intelligence infrastructure buildouts are contributing as much to U.S. inflation as tariffs, according to new research from the Minneapolis Federal Reserve. The analysis, published Friday, found that surging demand for memory and computing hardware has added roughly 0.4 percentage points to core inflation—matching the inflationary pressure from trade tariffs implemented in early 2025.

Core personal consumption expenditures inflation reached 3.3% year-over-year through July, the highest level since 2023 and, excluding the pandemic period, the highest since the early 1990s. The Minneapolis Fed researchers identified two distinct drivers: tariffs on imported goods and what some analysts call "chipflation"—price increases stemming from constrained supply of AI-critical components.

Why it matters

This research quantifies a cost that business leaders have felt but regulators have struggled to measure: the inflationary pressure created by the AI arms race. With every major technology company racing to build AI capacity simultaneously, competition for the same hardware components is creating price pressures that extend beyond data centers into consumer electronics. For enterprises planning technology investments, these findings suggest that AI infrastructure costs may remain elevated regardless of trade policy changes, forcing longer-term budget adjustments.

The hardware crunch behind the numbers

Prices for video and information processing equipment climbed 12.2% year-over-year through July, according to the Fed analysis. That represents a dramatic reversal from the 2015-2019 period, when prices in this category fell at an annual rate of 6.5%.

The supply-demand imbalance stems from concentrated investment by Microsoft, Google, Meta, Amazon, and other technology giants, all competing for the same pool of central processing units, graphics processing units, video RAM, storage systems, and cooling infrastructure needed to train and deploy large-scale AI models.

Consumer-facing impacts have materialized across product categories. Apple raised MacBook and iPad prices by 15% to 25% in June, while Lenovo, Dell, and HP implemented similar increases. Smartphone manufacturers and gaming console makers have followed suit.

Tariffs show up in clothing, not yet in cars

Tariffs imposed by President Trump in early 2025 now account for 0.2 to 0.4 percentage points of core PCE inflation as of July, the researchers found. The clearest signal appears in apparel: clothing and footwear prices surged from 0.3% annual inflation in December 2025 to 3.5% by July.

However, some heavily tariffed sectors have not yet fully reflected cost increases in consumer prices. New vehicle prices, for instance, remain below what the tariff burden would suggest, and recent business surveys indicate additional price hikes are planned.

The Minneapolis Fed researchers noted that even without tariff effects, core PCE inflation would still run one percentage point above the Federal Reserve's 2% target, underscoring the breadth of inflationary pressures in the current economy.

These findings were first reported by Forbes, based on the Minneapolis Federal Reserve analysis published August 29.