Artificial intelligence is emerging as an unexpected source of inflationary pressure, complicating the US Federal Reserve’s battle against rising prices even as oil markets have calmed, according to Barclays.
The bank argues that while investors had been focused on the fading impact of the Iran-related oil shock, the bigger story is that inflation has become broader and more persistent
Brent crude retreated to a four-month low after the US-Iran ceasefire agreement was signed last month, yet Barclays has raised its forecast for core personal consumption expenditure inflation to 3.3% by the end of the 2026 calendar year from 2.8% at the start of the year. Rather than energy, the bank says AI investment is now contributing to higher prices. Demand for data centres has pushed up memory chip costs, feeding through to computer hardware and software prices.
At the same time, electricity prices have risen as power demand from AI infrastructure has increased. Barclays estimates AI-related categories have added about 20 basis points to core PCE inflation and 25 basis points to headline PCE in recent months. That is particularly important because computer software and accessories carry far greater weight in the Fed’s preferred PCE inflation measure than in the consumer prices index.