3 ways AI is adding to inflation, according to Goldman Sachs

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Experts expect AI to fuel disinflation, but so far it's doing the opposite, Goldman Sachs said.
AI is adding to the inflation weighing on US consumers, not offsetting it.
Computer parts, AI upcharges, and pricy power bills are among the AI inflation inputs flagged.

AI is contributing to mounting inflationary pressures that are weighing on US consumers, Goldman Sachs said.

It's been predicted that the technology could rewire the global economy by fueling transformational productivity gains and spurring a wave of disinflation, but so far, it's actually adding to inflation, Goldman said.

"We expect artificial intelligence to deliver large productivity gains over the next several years, boosting the economy's potential growth rate and putting downward pressure on production costs. So far, however, AI is boosting US inflation," the economists wrote.

Bank of America said recently that anticipated AI-fueled productivity gains could be part of the reason equity investors haven't priced in the economic impacts of the Iran war.

Goldman said they expect AI to fuel disinflation in the long term, but it's adding to inflation in the near term.

"Once AI-related productivity gains become more widespread, we expect higher productivity growth to prove disinflationary at first—in line with the typical experience in prior episodes of technological innovation—especially if quality adjustment evolves to capture new AI features," they wrote.

But, they noted that AI could be less disinflationary than past tech-driven productivity cycles if it feeds into higher profits and wages, but not lower prices, or if the Fed preemptively lowers rates in anticipation of disinflation.

Here are three ways that Goldman says AI is fueling inflation for American consumers now.

Computer part price spikes

The AI boom has fueled surging for more than just advanced chips that go into data centers, including memory chips.

The memory supercycle has fueled gains for memory chipmakers as they work to meet the AI-driven demand.

"Strong demand for AI infrastructure has raised the price of some key electronics inputs, which has increased computer accessories prices and will likely boost smartphone and computer prices in coming months," Goldman outlined.

Surging costs associated with memory chips is expected to fuel price spikes in consumer products like laptops and smartphones.

In fact, Apple flagged memory chip costs as a headwind cost in its latest earnings call.

AI upcharges

Many software applications have integrated AI into their offerings and used the new features as reason to raise prices, Goldman found.

"The addition of new AI features to existing software has likely put some upward pressure on software prices over the last couple of years," the firm wrote.

Microsoft, Adobe, Duolingo, Atlassian, Intuit, and Apple are some of the specific companies that have increased prices for their software offerings after integrating AI.

Goldman says these price raises have likely put upward pressure on consumer spending.

Surging electricity bills

Energy has emerged as a key theme of the AI boom. Data centers are fueling a massive surge in power demand and, in turn, have led to higher power bills for households.

"Higher electricity demand to power data centers is increasing electricity prices in some US regions, and we expect it to continue boosting inflation over the next couple of years.," Goldman said.

The firm projects that higher electricity prices will lift headline personal consumption expenditure data, the Federal Reserve's preferred measure of inflation, as well as consumer price index.

Business Insider found that more expensive power bills are just one way data centers are costing the public. The award-winning "The True Cost of Data Centers" series identified the air-pollution-related estimated public health costs to be between $5.7 billion and $9.2 billion annually.