The surge in artificial intelligence is reshaping the landscape of US inflation in unexpected ways. According to calculations by Goldman Sachs economist Megan Peters in a recent report, the triple effect of AI-driven memory price spikes, software price increases, and rising electricity costs has already added more than 0.2 percentage points to the year-on-year core PCE inflation rate. It is projected that this contribution could rise to 0.5 percentage points by the end of the year. This estimate does not yet fully account for various spillover effects, suggesting the actual impact could be even greater.
This warning has found resonance within the Federal Reserve. The latest minutes from the Federal Open Market Committee (FOMC) meeting marked the first explicit mention that a majority of officials are considering a scenario where "inflation remains elevated due to strong AI-related demand." The Fed's semi-annual Monetary Policy Report also listed "increased demand for high-tech products supporting AI applications" as one of the factors putting upward pressure on prices.
Diverging Views Emerge at the Fed
The issue of AI-driven inflation has sparked rare public disagreement among top Federal Reserve officials. In a recent speech, New York Fed President John Williams stated directly that if AI demand "creates persistent pressure on supply and demand and pushes up inflation, I think that's something we shouldn't ignore." This stance stands in clear contrast to that of Fed Chair Waller. In November of last year, Waller authored an article characterizing AI as a "significant disinflationary force," arguing it would enhance US competitiveness by boosting productivity. While this assessment may hold some validity in the long term, the immediate reality is the undeniable cost pass-through from soaring memory prices to consumer electronics.
Three Key Channels Driving Core Inflation Higher
Goldman Sachs quantified the transmission of AI's impact on inflation through three main channels. Memory prices represent the most direct pathway. Since the beginning of 2025, robust data center demand has driven prices for certain memory components up more than tenfold. Goldman Sachs forecasts that the software and accessories price index, which is highly correlated with memory prices, will reach a peak year-on-year increase of approximately 30% in November, contributing about 36 basis points to the year-on-year core PCE. Recent price hikes of up to 25% announced by major consumer electronics manufacturers like Apple Inc., Microsoft Corporation, and Dell Technologies Inc. are a direct manifestation of this trend.
While memory price increases are a global phenomenon, their inflationary impact varies by country. In non-US developed markets like the Eurozone, the UK, and Canada, the peak contribution to inflation categories directly affected by memory is estimated between 1 and 9 basis points, averaging around 5 basis points, which is significantly lower than in the US. This disparity primarily stems from the higher weight of these categories in the US PCE basket compared to other nations.
Software price increases constitute the second channel. In January 2025, Microsoft raised the subscription price for the consumer version of Microsoft 365 for the first time since the subscription model was introduced in 2013, citing the integration of the AI Copilot feature. UK statistics show that software prices in March 2025 recorded their highest-ever quarterly increase of 20%. Given the extremely low weight of software in the inflation baskets of most developed markets, this effect is relatively limited outside the US. In the UK, for instance, a 20% overall software price increase contributes less than 4 basis points to core inflation, with even smaller impacts elsewhere.
Rising electricity prices form the third transmission link. Power demand from data centers has begun to push up residential electricity bills in the US, with effects particularly pronounced in regions with dense data center concentrations. Goldman Sachs estimates that data center electricity demand is currently contributing about 8 basis points to year-on-year core PCE inflation through the electricity price channel, with the impact in some PJM Interconnection states far exceeding the national average.
Sustained Climb in Data Center Power Demand
The medium to long-term trajectory of electricity price pressure is equally concerning. According to Goldman Sachs research projections, the share of US total electricity consumption used by data centers is expected to rise from about 6% currently to 11% by 2030, nearly doubling. In contrast, the EU's data center electricity share has long been stable at 3% to 4% and is projected to rise only modestly to about 6% by 2030, indicating significantly lower pressure. A report cited by Goldman Sachs shows that in Ireland, where data centers account for a substantial 23% of electricity consumption, data center construction cumulatively increased the average household energy bill by approximately €360 between 2015 and 2023. This case may serve as a reference for potential future trends in the US. For smaller developed and emerging markets with concentrated data center development, there remains considerable room for further electricity price pressure.
A Policy Conundrum: The Fed's Limited Leverage Over Memory Prices
This analysis places the Federal Reserve in a difficult position. When core PCE inflation faces additional upward pressure from supply-side technological shifts, monetary policy tools have no direct influence over memory prices, electricity rates, or software subscription fees. Simultaneously, the AI capital expenditure boom shows no signs of abating in the short term, suggesting that related inflationary pressures are likely to persist for the foreseeable future. For market participants, if Goldman Sachs's projections materialize and the year-end contribution to core PCE inflation reaches 0.5 percentage points, it would further narrow the window for Fed interest rate cuts this year and could force policymakers to reassess their previous reliance on the narrative of AI as a "long-term disinflationary" force.
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