Can AI be blamed for inflation? Partly, yes.

High inflation has coincided with massive amounts of spending on the AI boom, but the historic amount of investment may be getting more blame than it deserves, at least according to an Oct. 13 report from Goldman Sachs that examines how much AI spending is contributing to inflation measures.

This year, companies around the world are expected to invest $1 trillion in AI, including $581 billion in the US, according to a separate report Goldman Sachs published in August.

Some Federal Reserve officials have blamed AI spending for contributing to inflation’s remaining above the Fed’s 2% target. Earlier this month, Christopher Waller, a Federal Reserve Governor, listed the reasons he had lost confidence that inflation was easing, including what he called mounting “evidence…that the artificial intelligence buildout was significantly driving up high-tech consumer prices, and projections for the size of that buildout ballooned.”

Fed board member Lisa Cook in a September speech said AI was among factors contributing to inflation. Amid the data center buildout, demand for energy and construction labor affects the economy broadly, Cook noted. “Prices for AI-related goods—such as chips, computers, and software—have surged,” and electricity and water prices have both risen around 5% in the past year, Cook said.

The new Goldman report, however, says we may be laying too much blame on AI. “In short, the impact of AI demand on inflation is meaningful but moderate…and is likely near its peak,” Jessica Rindels, US economist at Goldman Sachs, and David Mericle, chief US economist, wrote in the October 13 report. They also say that some of AI’s effect on core inflation comes from inflation “mismeasurement.”

The breakdown. The personal consumption expenditures index, or PCE, considered the Fed’s favored gauge of inflation, rose 3.4% in August compared with a year earlier, according to the Bureau of Economic Analysis (BEA). Core PCE, which excludes food and energy, increased 3%. Both numbers moved even higher in September.

Goldman estimated that AI was currently increasing core CPE by about 45 basis points (out of a total 300 basis points, or 3%, in the August reading), “of which about half reflects a genuine impact rather than mismeasurement.”

The report evaluated four channels where AI has impacted inflation. For one, “AI has raised software and accessories inflation sharply by boosting prices for memory and other accessories and by contributing to large price increases for software products that now have AI features.”

Secondly, AI demand has caused the price of components and materials used for computers and consumer electronics to rise and will continue to do so until late 2027, the report said, adding about 15 basis points to core PCE.

Then there’s the demand for power from data centers that is raising electricity prices; Goldman estimates it has contributed 5 to 10 basis points to core inflation “by raising energy costs for companies and an additional 5 to 10 bp to headline inflation through the direct impact on household electricity bills.”

Lastly, “prices for industrial metals used for data center construction have risen substantially, which we estimate has boosted core inflation by about 5bp,” the Goldman economists said.

Counterpoint. Carl Tannenbaum, chief economist for wealth management firm Northern Trust, wrote in July that gauging pass-through affects on consumer prices was complicated. “The AI boom affects a range of consumer prices,” he said. He pointed out that the “wide range of firms rushing to put AI into broader usage” is causing computing costs to rise very quickly. “This will raise the prices of everything from Uber rides to cellular telephone service. In some instances, AI algorithms are costing more than the workers they are designed to replace.”

In addition, he wrote, “AI proponents note that upfront investments will pave the way for important productivity gains in the years ahead, which will limit inflation. The prospective size and timing of these benefits is the subject of active debate.”