AI hardware demand adds 0.4% to US inflation
Minneapolis Fed data shows so-called ‘chipflation’ pushing prices as hard as Trump's tariffs
Video and information processing equipment prices fell at a steady 6.5% a year from 2015 to 2019. Through July this year, they were up 12.2%, and the Minneapolis Federal Reserve says AI demand, not tariffs, is the bigger reason why.
In July, core PCE inflation remained steady at 3.3% year-over-year, marking the highest level since 2023 except for the pandemic years and the highest level since the early 1990s excluding the pandemic period.
The study by the Minneapolis Fed, released on Friday, concluded that tariffs have increased the rate by 0.2 to 0.4 percentage points, and surging demand for memory and hardware used in artificial intelligence has added about 0.4 percentage points, matching the impact of tariffs.
It is a simple case of supply and demand pressures. Microsoft, Google, Meta and Amazon are all trying to build their AI infrastructure and competing for the same chips, GPUs, video RAM, storage and cooling components. And prices are rising because of it, referred to as 'chipflation', which is affecting consumer electronics beyond data centres.
Apple raised MacBook and iPad prices by 15% to 25% in June. Lenovo, Dell and HP have followed with their own increases, and smartphone and gaming console makers have raised prices as well.
Clothing and footwear inflation, by contrast, illustrates the tariff side of the story clearly: it climbed from just 0.3% in December 2025 to 3.5% by July as import costs finally reached store shelves.
Even stripping tariffs out entirely, the Minneapolis Fed found core PCE inflation would still sit roughly one percentage point above the Fed's 2% target, evidence that AI-driven hardware costs are now a structural piece of the inflation picture rather than a temporary blip.
