The torrent of corporate spending on artificial intelligence in the U.S. is driving up consumer prices, working against efforts to cool inflation. 

AI requires enormous computing power, driving demand for the semiconductors that enable it. Rising chip costs are also prompting electronics manufacturers to raise prices on smartphones, computers, software and other tech accessories.

Consumers are sensitive to cost changes for the devices they use daily, so they notice when prices climb, experts said.

“Consumers track prices for things like phones,” Eric Johnson, a professor at the Columbia Business School in New York who focuses on AI and consumer behavior, told CBS News. “The old line is that the price of milk influences what you think the cost of living is. Phones are the new milk.”

This week’s Consumer Price Index, which tracks changes in the price of a typical basket of goods and services over time, showed that inflation in July rose at a 3.4% annual pace, in line with economists’ expectations. Core goods, which exclude volatile food and energy prices, increased 0.2% from the previous month.  

But the cost of information technology commodities — basic hardware and software products — rose much faster, increasing 1.4% in July from the previous month. Translation: Inflation continues to run well above the Federal Reserve’s 2% annual target, and rising tech costs are a significant contributor to climbing goods prices. 

“We are in the midst of a huge AI-related buildout, which requires inputs like chips that also go into consumer goods,” BofA Securities economist Stephen Juneau told CBS News. “So now consumers are competing for these goods with businesses, which is crowding out demand.” 

Stronger demand is pushing up prices for graphics processing units and computer storage. Firms that pay more for the components that go into consumer electronics are passing the costs on to shoppers, Juneau added. Software costs are also rising as consumers spring for paid subscriptions to souped-up generative AI tools, spending roughly $20 to $30 a month on average.

AI is also driving up consumer prices in other ways. Data centers use enormous amounts of energy, straining the nation’s electric grid and boosting Americans’ utility bills. The latest CPI data shows that electricity costs rose 4.2% in July from a year ago.

Short-term pain, long-term gain?

Hefty business investment in AI is expected to continue boosting inflation in the near term, according to economists. Oxford Economics lead U.S. economist Bernard Yaros noted in a report earlier this year that he expects price surges to “continue to provide an atypical boost to core inflation over the next two years.”

Yaros also thinks those tech-driven inflationary pressures will persist longer than other factors currently contributing to rising consumer prices, including steeper U.S. tariffs and higher energy costs due to the Iran war.

Over the longer term, many economists expect AI to exert downward pressure on prices by creating efficiencies that make businesses more productive. Until then, however, consumers may have to take the pain.