Topline
An analysis from the Minneapolis Federal Reserve indicates that surging demand from artificial intelligence for memory and computer hardware has contributed to core inflation at a level comparable to the tariffs introduced by President Donald Trump early last year.
An Apple MacBook Air laptop.
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Key Facts
Tariffs, whose effects are just beginning to surface in consumer prices, now account for 0.2 to 0.4 percentage points of core personal consumption expenditures inflation as of July, according to a Minneapolis Fed analysis released Friday.
Core PCE inflation, which excludes volatile food and energy prices, reached 3.3% year-over-year through July—the highest level since 2023 and, outside the pandemic period, the highest since the early 1990s.
Clothing and footwear prices climbed from 0.3% annual inflation in December 2025 to 3.5% by July, representing one of the clearest indicators that tariff-related costs are now reaching consumers.
AI-driven demand for memory and computer hardware has pushed prices for video and information processing equipment up a remarkable 12.2% year-over-year through July, adding roughly 0.4 percentage points to core PCE inflation—matching the total contribution from tariffs.
What to Watch For
Further tariff-driven price increases are likely still on the horizon. Some heavily tariffed sectors, such as new vehicles, have not yet fully passed through cost increases, and recent surveys indicate that businesses plan to implement additional tariff-related price hikes.
SURPRISING FACT
Researchers noted that even without tariffs, core PCE inflation would still remain one percentage point above the Federal Reserve’s 2% target.
BIG NUMBER
6.5%. That represents the annual rate at which prices for video and information processing equipment were declining from 2015 to 2019, making the category’s current 12.2% price increase an extraordinary reversal driven by AI hardware demand.
KEY BACKGROUND
The AI-driven price increases highlighted in the Minneapolis Fed report, informally referred to as “chipflation,” stem from a tight supply-demand squeeze across the technology sector. All of the world’s major technology companies, including Microsoft, Google, Meta, and Amazon, are investing in their artificial intelligence operations at remarkable speed, and they all require the same hardware to support these efforts. Building and training high-performance AI models demands central processing units, graphics processing units, video RAM, storage, cooling systems, and other hardware at an immense scale, and prices for these components have subsequently surged, even at the individual consumer level. Apple raised its MacBook and iPad prices by 15% to 25% in June, and other manufacturers, including Lenovo, Dell, and HP, followed suit. Smartphone makers and gaming console companies have similarly raised their prices.
