Goldman Sachs said AI is contributing to rising inflationary pressures, weighing on U.S. consumers.
The technology is predicted to have the potential to rewire the global economy by driving transformative productivity gains and triggering a wave of disinflation, but so far it has actually accelerated inflation, Goldman said.
“We expect artificial intelligence to significantly increase productivity in the coming years, boosting the economy’s growth potential and putting downward pressure on production costs. So far, however, AI is driving up U.S. inflation,” the economists wrote.
Bank of America recently said that part of the reason equity investors are not pricing in the economic impact of the Iran war may be the expected productivity gains from AI.
Goldman said it expects AI to promote disinflation in the long term, but further accelerate inflation in the short term.
“As AI-related productivity improvements become more widespread, we expect that high productivity growth will initially prove disinflationary, consistent with typical experience with technological innovations to date, especially as quality adjustments evolve to acquire new AI capabilities,” they write.
However, they noted that if AI helps raise profits and wages but not lower prices, or if the Fed preemptively lowers interest rates in anticipation of disinflation, AI could be less disinflationary than in past technology-driven productivity cycles.
Here are three factors Goldman says AI is currently driving inflation for U.S. consumers.
Rising prices of computer parts
The AI boom has soared demand for products such as memory chips that go beyond the advanced chips found in data centers.
The memory supercycle has accelerated profits for memory chip makers to meet AI-driven demand.
“Strong demand for AI infrastructure is driving up the prices of some major electronic devices, which is also driving up the prices of computer accessories, and is likely to increase the prices of smartphones and computers in the coming months,” Goldman outlined.
Rising costs associated with memory chips are expected to result in higher prices for consumer products such as laptops and smartphones.
In fact, Apple pointed to memory chip costs as a headwind cost in its latest earnings report.
Additional charges for AI
Goldman found that many software applications are integrating AI into their products and using the new features as a reason to increase prices.
“The addition of new AI capabilities to existing software may have placed some upward pressure on software prices over the past few years,” the company wrote.
Microsoft, Adobe, Duolingo, Atlassian, Intuit, and Apple are some of the specific companies that have increased the prices of their software products after integrating AI.
Goldman says these price increases are likely putting upward pressure on consumer spending.
Soaring electricity prices
Energy has emerged as a key theme in the AI boom. Data centers are driving a significant spike in electricity demand, resulting in higher electricity bills for households.
“Increased demand for electricity to power data centers has driven up electricity prices in some regions of the United States, and we expect them to continue to push inflation higher in the coming years,” Goldman said.
The company predicts higher electricity prices will lead to higher key consumer spending data and the consumer price index, which the Federal Reserve recommends as an indicator of inflation.
Business Insider found that rising electricity prices are just one of the costs data centers are putting on the public. The award-winning “The True Cost of Data Centers” series identified the estimated public health costs associated with air pollution to be between $5.7 billion and $9.2 billion annually.