WASHINGTON– American consumers (and the Federal Reserve) are suffering another headache from high costs.

The surge in data center investments — likely to top $700 billion this year — to boost artificial intelligence has made memory chips, computer processors and other equipment, as well as electricity, more expensive, and economists expect it to continue pushing up inflation at least through the end of this year.

While it won’t be as big of an increase as what occurred in 2021-2023, when inflation peaked at 9.1%, the massive spending on AI is likely to keep prices rising faster than the Federal Reserve would like. Such increases could lead the central bank to raise its key interest rate later this year to cool spending and reduce inflation. Higher rates from the Federal Reserve often increase borrowing costs for auto loans, mortgages, and business loans.

Federal Reserve officials will closely monitor the June inflation report, due out Tuesday, for further signs of AI’s impact on prices. Last month’s inflation likely cooled as gasoline prices fell after a ceasefire was reached between the United States and Iran, although it is now unclear whether that trend continues as the United States and Iran have resumed fighting.

Four large technology companies alone (Google parent Alphabet, Amazon, Meta Platforms and Microsoft) are expected to invest $720 billion this year, mainly in data centers.

Those data centers use a lot of semiconductors and chip supplies have run out. 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.

Americans are already seeing higher prices on a variety of consumer electronics, including laptops, smartphones, video game consoles and computers. Electricity prices are also rising as data centers absorb an increasing proportion of new electrical capacity.

In a high-profile announcement last month, Apple announced that it would increase prices for laptops and iPads by 15% to 25%. A top-of-the-line MacBook will now cost $1,999, up from $1,699.

Many analysts expect price increases for iPhones to follow.

“The rapid expansion of AI data centers has created an extraordinary increase in demand for memory and storage,” Apple said in a statement. “We have never seen the price of a component increase so large and so quickly.”

The same day, Microsoft announced that the price of its XBox video game console will increase by $100 by August 1, citing higher prices for memory chips. Sony is also charging more for the Playstation, while Dell Computer and HP have raised the prices of their laptops.

A “wave of AI-related cost pressures spilling over into consumer prices is still in the early stages of building,” analysts at investment bank Evercore ISI recently wrote.

The impact on broader measures of inflation may be relatively modest, and many economists predict that investment in AI will raise underlying consumer prices, which exclude food and energy, by about half a percentage point by the end of this year.

Still, that could be enough to offset falling prices elsewhere, as the impact of President Donald Trump’s tariffs continues to fade and rental costs decline. Core inflation, by the Fed’s preferred measure, was 3.4% in May and some economists now expect it to decline only slightly by the end of the year, remaining well above the Fed’s 2% target.

The AI ​​boost may prove temporary, but it follows previous waves of higher prices stemming from tariffs and rising gas prices resulting from the war with Iran. The Federal Reserve typically “overlooks” or ignores temporary price increases, rather than raising rates to combat them, but a continued 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.

“In isolation, one or two of those shocks are perhaps transitory, something they’re willing to live with,” said Abiel Reinhart, an economist at JP Morgan. “A sustained series of shocks, or a broader range of shocks, becomes more worrying for them.”

Fed policymakers are increasingly focused on the inflationary impact of AI. Kevin Warsh, who took office on May 22, has said he believes AI will eventually make the U.S. economy more efficient, which should reduce inflation even as growth accelerates.

However, he acknowledged in remarks on July 1 that investment in AI is now driving demand, but declined to speculate on how inflationary the impact would be.

However, many Fed officials are concerned that demand for AI-related equipment continues to outstrip available supply, a recipe for persistent price increases.

“If this creates a sustained boost to demand relative to supply in inflation, I think that’s the kind of situation where you don’t look at this,” John Williams, president of the Federal Reserve Bank of New York, said Thursday. Williams is also vice chairman of the Federal Reserve’s rate-setting committee. Williams has supported keeping rates unchanged, but his comment suggests that under some scenarios he could support an increase.

According to the minutes of the Federal Reserve’s June 16-17 policy meeting, released Wednesday, many other officials share Williams’ concerns.

Another channel through which AI could increase inflation is through its enormous demand for electricity, which has caused many utilities to raise prices. Power companies across the United States are adding more capacity, a costly move that can also increase electricity costs.

According to the government’s consumer price index, electricity prices rose 5.9% in May compared to a year earlier, a larger increase than overall inflation, which was 4.2%. After a pandemic spike, electricity price growth had fallen back to around 2% annually by early 2025.

While computer chip prices could peak this year and then decline, experts expect demand for electricity from AI to drive up utility costs through 2028 or even beyond. In February, economists at Goldman Sachs forecast that electricity prices will rise 6% this year and next, and 3% above average in 2028.

“We know what effect AI is having on inflation now, and it is inflationary, not deflationary,” Dario Perkins, an economist at TSLombard, wrote this week.