What to watch for
Further tariff-driven price increases are likely still in the pipeline. Some heavily tariffed sectors, like new cars, have not yet fully passed through cost increases, and recent surveys show businesses plan to implement additional tariff-related price hikes.
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SURPRISING FACT
Researchers said that even without tariffs, core PCE inflation would still be one percentage point above the Fed’s 2% target.
BIG NUMBER
6.5%. That’s the annual rate at which prices for video and information processing equipment were falling from 2015 to 2019, making the category’s 12.2% price hike an extraordinary reversal driven by AI hardware demand.
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KEY BACKGROUND
The AI-driven price spikes noted in the Minneapolis Fed report, colloquially called “chipflation,” stem from a tight supply-demand squeeze across the technology sector. All of the world’s major tech companies (think Microsoft, Google, Meta and Amazon, among others) are investing in their AI business at shocking speed—and they all need the same hardware to do so. Building and training high-performance AI models requires central processing units, graphics processing units, video RAM, storage, cooling systems and other hardware at a massive scale, and prices for those items have subsequently surged, even at the individual consumer level. Apple raised its MacBook and iPad prices by 15% to 25% in June, and other companies like Lenovo, Dell and HP did the same. Smartphone makers and gaming console companies have also raised prices.
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further reading
ForbesIs ‘Chipflation’ The Next Hormuz Crisis?By Dan RunkeviciusForbesAI’s Chip Boom Is Creating Labor And Supply-Chain ProblemsBy Ron SchmelzerForbesHow AI Is Driving Up The Costs Of Phones, Games And ComputersBy Conor Murray