AI Chip Inflation Cooled in July
In July, the inflation that has been hounding the artificial-intelligence buildout cooled off in many of the most obvious categories of goods. The extraordinary price pressure seen in June eased across computers, storage equipment, circuit boards, copper, and aluminum, while the remaining heat moved deeper into the physical infrastructure of the buildout.
The June figures were alarming. Prices for computer-storage devices jumped 8.3 percent. Bare printed circuit boards surged 22.2 percent. Nonferrous wire and cable rose 1.7 percent, and aluminum mill shapes increased 2.4 percent. It was clear that demand was outstripping supply.
Most of those increases faded in July. Storage-device prices were unchanged. Bare circuit boards rose just 1.4 percent. Electronic components and accessories fell 0.7 percent after rising 0.6 percent in June. Aluminum mill shapes declined 1.6 percent, copper and brass mill shapes dropped 2.9 percent, and primary nonferrous metals fell 7.6 percent.
The year-over-year figures remain enormous. Storage devices were up 28.8 percent from a year ago. Bare circuit boards were up 45.4 percent. Aluminum mill shapes were up 40.5 percent, while copper wire and cable was up 17.9 percent.
Metals provide even stronger evidence that June’s surge quieted. Primary nonferrous metals fell 7.6 percent. Aluminum mill shapes declined 1.6 percent, and copper and brass mill shapes fell 2.9 percent. Copper wire and cable slowed from 2.2 percent to 0.2 percent. These remain extraordinarily elevated over the year—primary nonferrous metals by 52.8 percent, aluminum shapes by 40.5 percent, and copper wire by 17.9 percent—but the July flow was clearly softer.
The most dramatic year-over-year electronics number is the 172.6 percent increase in loaded printed-circuit assemblies and modules. It rose only 0.4 percent in July after being unchanged in May and June. The annual increase principally reflects earlier repricing, including a 25 percent April jump. This looks very much like a situation where higher prices drew in higher supply.
But Inflation Migrated to Construction
Given the pace of investment, it is unlikely that this represents cooling demand. Instead, it is likely that supply has caught up. One reason to suspect that demand is not cooling is that the inflationary center of the AI buildout appears to be moving from computing equipment toward the systems needed to power and cool it. Transformer and power-regulator prices jumped 4.2 percent in July. Power and distribution transformers rose 4.6 percent. Industrial controls climbed 3.9 percent.
Construction prices tell the same story. New office-building construction, the BLS category that includes data centers, rose 2.5 percent in July after being unchanged in June. Industrial-building construction rose 2.4 percent, and warehouse construction increased 2.2 percent. Prices charged by nonresidential electrical contractors climbed 1.3 percent, while plumbing, heating, and air-conditioning contractors raised prices 2.4 percent.
In other words, the microprocessor was replaced by the electrician as the hottest commodity in the AI buildout in July.
There may be some leakage from AI demand into consumer inflation. Personal computers saw prices jump 18.1 percent in July, and laptop prices rose 17.7 percent. Last month, Apple announced major price increases due to surging memory and storage costs. “We have never seen a component price increase this much, this quickly,” Apple said in a statement. “We have shielded our customers from these increases so far, but we have now reached a point where we need to begin raising prices on a number of products, including today’s increases for iPad and Mac.”