Artificial intelligence is not just changing the technology industry. The growing demand for AI hardware is also pushing up prices for consumers. A new analysis from researchers at the Minneapolis Federal Reserve found that the huge demand for memory and computer hardware needed for AI has added about as much to core inflation as the tariffs imposed by President Donald Trump.
The AI boom is also making some everyday technology more expensive. The hardware needed to build and run AI systems, including computer chips, memory, storage and cooling equipment, is in high demand. That is pushing up costs for products people actually buy, such as laptops, tablets, smartphones and gaming consoles.
US Inflation Holds at 3.7% in July as Iran War
US inflation remained at 3.7% in July, staying at the same level for the second month in a row, according to the Commerce Department’s latest personal consumption expenditures report.
The latest figures show that Americans are still facing higher prices, with several factors keeping inflation above the Federal Reserve’s 2% target.
The Fed has pointed to three major sources of price pressure: the war with Iran, tariffs and strong demand linked to the artificial intelligence boom.
Tariffs are already pushing prices higher
The impact of Trump’s tariffs is now beginning to show up in consumer prices. According to the Minneapolis Fed analysis published Friday, tariffs were adding between 0.2 and 0.4 percentage points to core personal consumption expenditures (PCE) inflation as of July.
Core PCE inflation, which leaves out food and energy prices because they can change sharply, rose to 3.3% year over year through July.
That was the highest level since 2023. Outside the pandemic period, it was also the highest since the early 1990s. Clothing and footwear prices are one clear example of how tariff costs are reaching consumers. Annual inflation in the category rose from just 0.3% in December 2025 to 3.5% in July.
But tariffs are not the only reason prices are rising.
AI hardware is adding just as much to inflation
The rapid growth of AI has created huge demand for computer hardware and memory. That increase alone added around 0.4 percentage points to core PCE inflation.
In other words, the effect was roughly equal to the total contribution from Trump’s tariffs. The rise is especially striking because prices in this category used to fall steadily.
From 2015 to 2019, video and information processing equipment prices were falling at an annual rate of around 6.5%. The latest increase therefore marks a major reversal, driven largely by the growing demand for hardware needed for AI.
More tariff-related price increases could still come
The impact of tariffs may not be over yet. Researchers said more price increases could reach consumers in the months ahead. Some industries facing heavy tariffs, including new cars, have not yet fully passed their higher costs on to buyers.
Recent business surveys also suggest that companies are planning more tariff-related price increases. That means inflation could face further pressure even if some of the tariff impact has already reached consumers.
Inflation would still be above the Fed’s target without tariffs
According to the Minneapolis Fed researchers, tariffs are not responsible for all of the current inflation. Even if the tariffs had not been imposed, core PCE inflation would still be about one percentage point above the Federal Reserve’s 2% target, according to the analysis.
That suggests other forces, including an increase in AI-related hardware prices, are also playing a significant role.
Why AI is pushing hardware prices higher
The AI-related price increases, sometimes referred to as “chipflation,” are being driven by a simple supply-and-demand problem. The world’s biggest technology companies, including Microsoft, Google, Meta and Amazon, are spending heavily to expand their AI businesses.
They are all competing for many of the same products.
Building and training powerful AI models requires huge amounts of CPUs, GPUs, video RAM, storage, cooling equipment and other computer hardware. As demand keeps growing, supplies have struggled to keep up. That has pushed prices higher across the technology sector.
The impact is also being felt by ordinary consumers. Apple raised prices for its MacBook and iPad models by 15% to 25% in June. Companies including Lenovo, Dell and HP have also increased prices.
Smartphone makers and gaming console companies have raised prices as well.
So while AI is driving a huge technology boom, the demand behind that boom is also creating a less obvious effect: higher prices for some of the hardware consumers buy.