AI hardware demand and tariffs both lift core inflation, Fed analysis shows

A new analysis from the Minneapolis Federal Reserve indicates that the rapid expansion of artificial-intelligence workloads is straining supply of memory and computer components, driving a 12.2% rise in prices for video and information processing equipment and adding roughly 0.4 percentage points to core personal consumption expenditures inflation. The same study finds that tariffs imposed by President Donald Trump earlier in the year now account for an additional 0.2 to 0.4 percentage points, evident in a jump in clothing and footwear inflation from 0.3% to 3.5% since December 2025.

Core PCE inflation stood at 3.3% year-over-year through July, the highest reading since the early 1990s outside the pandemic era. The report notes that other heavily tariffed categories, such as new automobiles, have not yet fully transmitted cost pressures, and surveys suggest businesses plan further tariff-related price hikes. It also highlights that, even without tariffs, core inflation would remain about one point above the Federal Reserve’s 2% target. The phenomenon, dubbed “chipflation,” reflects a broader scramble by major tech firms—including Microsoft, Google, Meta, and Amazon—to secure hardware for AI development, prompting price hikes across consumer devices from Apple to Dell.