After inflation comes “chipflation”

(novilist.hr)

The explosion of artificial intelligence development has redirected the production capacities of global chip and memory manufacturers towards the UI industry, which has caused a shortage of memory components, which is why smartphones, computers and other consumer electronics are becoming more expensive. Because artificial intelligence, or more precisely, data centers that are being built all over the world, and one of them will soon be here, “swallows” too much memory, much more than the digital devices we use every day, including cars, which is why the world's largest microchip manufacturers have turned to the new “golden chicken”, and are increasingly neglecting the consumer electronics market. The excitement about selling chips to artificial intelligence instead of to manufacturers of mobile phones and laptops has inflated the price of memory so much that manufacturers are seriously considering installing lower-quality electronics, such as outdated screens, in devices to compensate for the constantly rising price of microchips because they have become chronically scarce on the market. We are in a vicious cycle where the price of memory is rising due to high demand from the AI ​​industry, but also due to the shortage of microchips caused by that demand, which results in the price of products that require memory rising. Not only will consumer electronics become more expensive, but they will also sell us electronics with cheaper and outdated components.

Analysts see the rise in microchip prices as a new, hidden source of inflation that is quietly, “in the background” of the oil shock caused by the conflict in the Persian Gulf, slowly making our everyday lives more expensive, but it is not yet visible in statistics. Economists are already calling this craze for microchips “chipflation” because it creates pressure on prices that spill over from the technology sector to the entire economy, while massive investments in AI infrastructure are causing macroeconomic disruptions on several levels, primarily on the supply side, which is experiencing a shortage of memory chips used in everyday devices. Electronics manufacturers are therefore forced to choose between lower margins or passing on costs to customers and are mostly opting for the latter option, which is why “gadgets” are becoming more expensive.

Disruptions are also visible on the demand side, which analysts at Deutsche Bank and Goldman Sachs call a technology stampede, in which frantic investments in AI equipment create classic inflation driven by excessive demand. And given the fact that data centers or AI accelerators also consume electricity at a frantic pace, thereby burdening the network, this will inevitably lead to an increase in the price of electricity, and it is expected that this trend could increase overall inflation in the coming years. Namely, the most common query that we ask artificial intelligence uses 10 times more energy than a regular search, data centers consume as much electricity as a small country, and distributors pass on the increased cost to end consumers through higher tariff items.

In addition, software companies are already building AI features into their existing products, and are charging users for software upgrades, which in turn is driving up prices. Unlike previous crises and causes of inflation, leading analysts such as Morgan Stanley warn that the pressure of AI could bring about a long-term realignment of supply and demand, making technology and energy permanently more expensive! This is in stark contrast to earlier estimates that artificial intelligence would bring about a long-term decline in costs and productivity growth, i.e. act as a disinflationary force, but the short-term effects so far show the opposite trend. Economists also warn that hundreds of billions of dollars in investment have not yet made a significant contribution to overall economic growth. However, numerous analyses indicate that for the first time in more than 60 years, the prices of technological products are rising faster than wages, so we will very soon find ourselves in a situation where our investments (especially in the technology sector) will grow, while personal consumption will weaken. But we don't have to be afraid, because the Government has adopted anti-inflationary measures. In which there is no mention at all of the impact of the development of artificial intelligence on inflation.