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AI BOOSTING INFLATION IN US, WITH TREND LIKELY TO CONTINUE

While artificial intelligence should bring large productivity gains in the next several years, it is currently boosting inflation in the United States and that trend is likely to continue in the near term, according to a Goldman Sachs economist.

Strong demand for AI infrastructure has increased the price of some electronic inputs, raising computer accessories prices, writes Manuel Abecasis. That change is likely to lift smartphone and computer prices in the coming months, he says.

In addition, new AI features to existing software have likely driven up software prices over the last couple of years, he writes. Also, higher electricity demand to power data centers is increasing electricity prices in some U.S. regions, he says, noting: "We expect it to continue boosting inflation over the next couple of years."

Much of the contribution of recent increases in computer software and accessories prices to core PCE - personal consumption expenditures - inflation has been overstated, he says, but notes that Goldman Sachs estimates that AI-related price pressures have boosted year-over-year core PCE and core CPI inflation by about 0.3 percentage points and 0.1 pp over the last year, respectively. The firm expects those pressures to increase them by another 0.3 pps and 0.1 pp over the next year.

He adds that higher productivity thanks to AI could prove disinflationary at first, but may end up being less disinflationary than previous episodes "if it quickly translates into higher profits or wages (rather than lower prices)" or if the Federal Reserve eases monetary policy in anticipation of disinflation.

Goldman Sachs analysts also note that semiconductor company global revenues are expected to increase 50% from current levels by the end of 2026, thanks to strong AI-related investment growth.

(Caroline Valetkevitch)

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