Goldman Sachs reveals 3 ways AI contributes to inflation

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

Though many anticipated the technology would reshape the global economy by driving significant productivity improvements and a wave of disinflation, to date, it has been increasing inflation, Goldman noted.

"We expect artificial intelligence (AI) to bring about significant productivity improvements in the upcoming years, enhancing the economy's potential growth rate and lowering production costs. However, at this time, AI is increasing US inflation," the economists explained.

Bank of America mentioned recently that expected AI-driven productivity enhancements might be a factor in why equity investors haven't incorporated the economic effects of the Iran conflict.

Goldman predicts AI will lead to disinflation in the long run, but currently, it's pushing inflation higher.

"As AI-related productivity advances become more widespread, we anticipate these productivity boosts to initially lower inflation—in line with past technological advancements—especially as quality measures evolve to include new AI features," they stated.

However, they cautioned that AI might not be as disinflationary as previous tech-driven productivity cycles if it contributes to increased profits and wages without lowering prices, or if the Fed decides to lower rates prematurely in anticipation of disinflation.

Here are three current ways that Goldman suggests AI is driving inflation for US consumers:

Rising prices for computer parts

The AI surge has led to notable increases not only for advanced chips used in data centers but also for memory chips.

The memory supercycle has resulted in a boost for memory chip manufacturers as they strive to meet AI-related demand.

The rising costs of memory chips are expected to cause price spikes in consumer electronics like laptops and smartphones.

Indeed, Apple highlighted memory chip costs as a challenge during its latest earnings discussion.

AI-related price hikes

Numerous software platforms have integrated AI features and used these enhancements as a basis for increasing prices, Goldman discovered.

Microsoft, Adobe, Duolingo, Atlassian, Intuit, and Apple are among the companies that have increased prices for their software offerings following AI integration.

According to Goldman, these price increases have likely contributed to heightened consumer spending.

Increasing electricity costs

Energy has become a pivotal theme amid the AI surge. Data centers are fueling a large increase in power consumption, leading to higher energy costs for households.

The firm anticipates that higher electricity costs will impact personal consumption expenditure data, the Federal Reserve's favored inflation measure, along with the consumer price index.