Goldman Sachs warns the US will bear the brunt of a global AI-induced inflation surge
The US is likely to bear the brunt of a worldwide inflation wave driven by AI, according to new research from Goldman Sachs.
The Wall Street giant crunched the numbers on how the boom in artificial intelligence could stoke higher consumer prices around the world, thanks to supply constraints that have pushed up the prices for key components, like memory chips and semiconductors. The US will likely see the worst inflationary impact, Megan Peters, an economist at the bank, wrote.
AI is lifting core personal consumption expenditures inflation — the Fed’s preferred inflation measure — by around 20 basis points a year in the US, per Goldman’s estimate. By the end of the year, that inflationary pressure is expected to more than double, with the boost to core PCE rising by 50 basis points.
It outpaces the expected bump to core inflation in other developed nations, with Canada, Australia, Europe, the UK, and Japan likely to see an average 10 basis point increase.
“While not completely negligible, these effects are far below the 50bp peak we estimate for US PCE, suggesting that for the most part AI-driven inflation is a US story,” Peters wrote.
Peters broke down the inflationary impact of artificial intelligence into three distinct “waves” that could impact the economy.
Memory prices
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Prices for memory chips are rising amid heated demand for AI hardware. For example, the average price of an 8 GB DDR5 memory module climbed to around $148 in the last week, more than triple the average price of $35 in the same week last year, according to data from the computer hardware service firm Pangoly.
Goldman said it expects US software and accessories inflation to peak before the end of 2026, with prices growing at a 30% year-over-year pace in November.
Memory inflation is likely hitting the US harder than other nations, the bank added. Around 1% of PCE inflation is attributable to software and accessories in the US, compared to less than half a percent for other developed nations.
Software prices
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Software prices are also increasing as more firms bundle software with AI tools. The bank cited several examples of firms raising prices, such as Microsoft lifting the price for its flagship 365 bundle after incorporating its AI Copilot tool.
Software also accounts for a larger percentage of core inflation in the US compared to all other developed nations that were measured, Goldman said.
Electricity prices
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Energy is another key bottleneck of the AI trade, given the amount of expected electricity that’s needed to power data centers.
The average price for one kilowatt-hour of electricity in a US city rose to $0.19 this May, up around 27% since May 2022, according to the Bureau of Labor Statistics.
Data centers are on track to account for around 11% of the US’s total power demand by the end of the decade, up from 6% today, Goldman estimated.
Energy prices have also been rising due to supply fears stemming from the Iran war. West Texas Intermediate crude has mostly erased its gains over the last few months, but is still up 25% year-to-date.
Forecasters say the productivity benefits of AI will eventually lower inflation, though it’s uncertain how long the immediate surge in prices will last before the technology’s disinflationary effects will kcik in.
In a previous note, Goldman said it expected AI to be disinflationary in the long run, but that the technology could be less disinflationary than past tech cycles, such as the internet boom in the 90s.