AI has long been hailed as a productivity miracle, transforming industries and driving economic growth. However, recent data suggests that the technology may be having an unexpected impact on inflation. In the US, software CPI is running above 60% annualized, capital goods inflation is at its highest since the early 1990s, and North Asia AI exports are exploding higher. Even Samsung, one of the world’s largest tech companies, has agreed to massive bonuses for chip workers. According to DB’s George Saravelos, AI is becoming inflationary, not disinflationary.

So why is this happening? One reason is the increasing cost of producing and maintaining AI systems. As more businesses adopt the technology, the demand for skilled labor and specialized hardware is rising, driving up costs. Additionally, the rapid pace of innovation in the field means that companies are constantly investing in new technologies and updates, which can lead to higher inflation.

Another factor is the supply chain disruptions caused by the ongoing pandemic. With many factories and production facilities shut down or operating at reduced capacity, there are shortages of key components and raw materials. This has led to higher prices for these inputs, which in turn can drive up inflation across the economy.

The implications of this AI-driven inflation are significant. For one, it could lead to a slowdown in economic growth as businesses and consumers face higher costs. It could also have a negative impact on financial markets, particularly those that are heavily weighted towards technology stocks. And for policymakers, it presents a challenge in maintaining price stability while also promoting innovation and growth.