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WASHINGTON — <\/span>American consumers \u2014 and the Federal Reserve \u2014 are being hit with another high-cost headache<\/a>. <\/p>\n The gusher of investment in data centers \u2014 likely topping $700 billion<\/a> this year \u2014 to power artificial intelligence has made memory chips, computer processors, and other equipment, as well as electricity more expensive, and economists expect it will continue to push up inflation at least through the end of this year. <\/p>\n While it won’t be as large a spike as occurred in 2021-2023, when inflation peaked at 9.1%, massive AI spending is likely to keep prices rising more quickly than the Federal Reserve would like. Such increases could lead the central bank to lift its key interest rate<\/a> later this year to cool spending and bring down inflation. Higher rates from the Fed often boost borrowing costs for auto loans, mortgages, and business loans. <\/p>\n Fed officials will closely watch June’s inflation report, to be released Tuesday, for further signs of AI’s impact on prices. Inflation last month likely cooled as gasoline prices have fallen after a cease-fire was reached between the U.S. and Iran, though whether that trend continues<\/a> is now unclear as the U.S. and Iran have resumed fighting. <\/p>\n Just four large tech companies<\/a> \u2014 Google parent Alphabet, Amazon, Meta Platforms, and Microsoft \u2014 are expected to invest $720 billion this year, mostly on data centers. <\/p>\n Those data centers use a lot of semiconductors, and chip supplies have run low. As a result, economists at JPMorgan Chase estimate that the cost of some computer memory chips will have soared by as much as 400% between 2024 and the end of this year. <\/p>\n Americans are already seeing higher prices for a range of consumer electronics, including laptops, smartphones, video game consoles, and computers. Electricity prices are also jumping as data centers absorb a growing share of new electrical capacity. <\/p>\n In a high-profile announcement last month, Apple announced it was boosting prices<\/a> for laptops and iPads by about 15% to 25%. A topline MacBook will now cost $1,999, up from $1,699. <\/p>\n Many analysts expect price hikes will come for iPhones next. <\/p>\n \u201cThe rapid expansion of AI data centers has created an extraordinary surge in demand for memory and storage,” Apple said in a statement. \u201cWe have never seen a component price increase this much, this quickly.\u201d<\/p>\n On the same day, Microsoft announced<\/a> that the price of its XBox video game<\/a> console will increase $100 by Aug. 1, citing higher prices for memory chips. Sony is also charging more for the Playstation<\/a>, while Dell Computer and HP have raised prices for their laptops.<\/p>\n A \u201cwave of AI-related cost pressures spilling over into consumer prices is still in the early stages of building,\u201d analysts at investment bank Evercore ISI recently wrote. <\/p>\n The impact on broader measures of inflation may be relatively modest, with many economists forecasting that AI investment will boost core consumer prices, which exclude food and energy, by roughly a half-percentage point by the end of this year. <\/p>\n Still, that could be enough to offset declining prices elsewhere, as the impact of President Donald Trump’s tariffs continues to fade and as rental costs cool. Core inflation, according to the Fed’s preferred measure, was 3.4% in May<\/a> and some economists now expect it may decline only slightly by the end of the year, remaining well above the Fed’s 2% target. <\/p>\n The boost from AI may prove temporary, but it follows previous waves of higher prices stemming from tariffs and the gas price spike resulting from the Iran war. The Fed typically \u201clooks through,\u201d or ignores, temporary price increases, rather than boosting rates to fight them, but an ongoing series of temporary price shocks could threaten to create more sustained inflation, which has already been above the Fed’s target for more than five years. <\/p>\n \u201cIn isolation one or two such shocks is perhaps transitory, something they\u2019re willing to live with,\u201d said Abiel Reinhart, an economist at J.P. Morgan. “A sustained series of shocks, or a wider range of shocks, becomes more concerning to them.\u201d<\/p>\n Fed policymakers are increasingly focused on AI’s inflationary impact. Kevin Warsh, who took over as chair May 22, has said he believes that over time AI will make the U.S. economy more efficient, which should reduce inflation even as growth accelerates. <\/p>\n He acknowledged in remarks July 1<\/a>, however, that AI investment is now boosting demand, but declined to speculate on how inflationary the impact would be. <\/p>\n Yet many Fed officials worry that demand for AI-related gear will continue to outstrip available supply, a recipe for persistent price increases. <\/p>\n \u201cIf this creates a sustained impulse to demand relative to supply in inflation, I do think that\u2019s the kind of situation where you don\u2019t look through this,\u201d John Williams, president of the Federal Reserve Bank of New York, said Thursday. Williams is also vice chair of the Fed’s rate-setting committee. Williams has supported keeping rates unchanged, but his comment suggests that under some scenarios he could support a hike. <\/p>\n