• Computers, peripherals, and smart-home assistants jumped 9.7% year over year in September, the largest annual increase since at least 2006, while software and accessories surged 28.4%, according to headline CPI figures.
  • The spike stems from AI infrastructure demand tightening memory-chip supplies and raising costs for consumer electronics, though the Fed cautions that some of the increase may reflect mismeasurement of quality improvements.
  • The broader inflation backdrop is already challenging: September CPI rose to 3.7% from 3.4% in August, complicating the Fed's path back to its 2% target.

A Memory Squeeze Hits Consumers

The staggering rise in computer prices isn't just a statistical blip. It reflects a fundamental shift in the technology supply chain, where memory manufacturers are increasingly diverting capacity toward high-bandwidth memory for AI servers and data-center components. That leaves less supply for PCs, smartphones, and other consumer devices, forcing manufacturers to either absorb lower margins, raise prices, or redesign products.

Reuters (TRI) reported on October 12 that global smartphone shipments recorded their weakest third quarter in 14 years, as memory shortages drove up production costs and pushed retail prices higher. Smaller phone and laptop makers are particularly exposed, with some testing incoming chips for counterfeits amid shortages they expect to persist through 2027.

The pressure extends beyond personal devices. In June, industry groups representing automakers, retailers, and electronics businesses warned the Treasury and Commerce departments that memory shortages could cause sustained household price increases and disrupt critical U.S. supply chains. Entry-level phones are especially vulnerable, as even modest component cost increases can render low-priced devices uneconomical to produce.

Small Categories, Big Headlines

While the percentage increases in computers and software are eye-catching, their direct impact on overall inflation is limited by their small weights in the CPI basket. According to the August BLS table, computers, peripherals, and smart-home assistants represent approximately 0.309% of the index, while software and accessories account for just 0.031%. A 9.7% rise in such a small category translates to only a few basis points of headline CPI.

However, CPI is not the only measure the Federal Reserve watches. Richmond Fed research notes that software and accessories make up a little over 1% of the PCE spending measure and contributed over 0.15 percentage points to annual headline PCE inflation in May. That distinction matters because the Fed's 2% target is based on PCE, not CPI.

Fed officials have taken notice. Minutes from the September meeting explicitly identified "surging AI-related investments" as a source of inflation pressure, suggesting the AI buildout is becoming part of the central bank's assessment of persistent goods inflation. The median forecast for 2026 headline PCE inflation rose to 3.7% in the Fed's September projections.

A Two-Sided Economic Story

The AI investment boom is not purely inflationary. The same Richmond Fed analysis cites research estimating that AI-related investment added 0.97 percentage points to real GDP growth during the first three quarters of 2025. The economic tradeoff is stronger investment demand today versus constrained supplies—and potentially greater productive capacity later.

Goldman Sachs (GS) economists offered a more reassuring outlook on October 14, estimating that AI-related pressures currently add about 0.45 percentage points to core PCE inflation, with roughly half representing a genuine effect rather than mismeasurement. They forecast a peak of approximately 0.50 percentage points by year-end, falling to 0.10 percentage points by the end of 2027 as memory and computer price growth slows. That forecast does not imply a return to earlier device prices; slower price growth can reduce inflation while leaving the price level elevated.

For now, the squeeze shows few signs of easing. Manufacturers are already adjusting—raising prices, redesigning devices, and prioritizing profitability over shipment volumes. Whether those adjustments prove temporary or herald a new era of structurally higher technology costs depends largely on how quickly memory supply can catch up with AI's insatiable demand.

Correction: An earlier version of this article misstated the weight of software and accessories in the CPI basket. It is 0.031%, not 0.31%.