Many economists believe that AI will lead to more inflation. Why?

The personal consumption expenditures price index — the Federal Reserve’s preferred measure of inflation — comes out later this week. One factor in the inflation mix is artificial intelligence, and the hundreds of billions of dollars that companies are spending to build infrastructure to create it.

In a report out Monday from the National Association for Business Economics, more than 80% of the economic forecasters surveyed believe that AI buildout will be inflationary. As in, cause prices to rise over the next year.

To build data centers to power artificial intelligence, companies need memory chips, copper, and electrical equipment.

“Those things are also used in cars, toys, building out offices and apartment buildings,” said Yelena Maleyev, a senior economist with the audit firm KPMG who helped shape the questions for that NABE survey.

She said there’s a lot of competition for a finite amount of materials and tech companies are willing to splash the cash for their data center needs.

“Then the other things kind of fall to the sidelines, and they have to compete for higher prices for the same kind of workers to build out these facilities, and so over time prices do get pushed up,” Maleyev said.

The AI infrastructure build out is also contributing to higher electricity prices.

George Washington public policy professor Leah Brooks said data centers have been a shock to the system. “All of a sudden you have a lot more demand for electricity, but not an immediate ability to increase the supply,” she said.

Meanwhile, the stock market has been blowing up in the past couple of years, largely due to the performance of big tech firms that are investing in AI. This increases wealth, said UBS economist Alan Detmeister.

“People feeling more wealthy spend more, and if you're spending more, that tends to lead to higher inflation,” he said.

UBS estimates that AI adoption is pushing up the core PCE price index — that’s inflation minus food and energy — by 0.4%.

Detmeister added that AI is a pretty big contributor to inflation overall.

“It's not as big as energy, certainly, and tariffs are a big driver of the inflation as well right now, but it is significant,” he said.

At some point, AI adoption is expected to lead to higher productivity, Detmeister said, which will push down inflation. But we are not there yet.