A new research last week found that by mid-2026, tariffs and artificial intelligence (AI) factors were “contributing similarly to elevated core inflation across the United States (US).
Researchers at the Minneapolis Federal Reserve revealed that massive AI demand on memory and computer hardware drove up core inflation as much as the tariffs President Donald Trump imposed early last year.
“As the boom drives demand for memory and other computer hardware, the spillovers to goods prices appear to be at least as large as tariffs in keeping core inflation high,” according to a published Friday, August 28.
The article detailing the findings of the study was titled, “Initially delayed, the pass-through of tariffs to consumer prices has arrived.”
Key highlights of the research:
1. As of July 2026, 0.2 to 0.4 percentage points to core inflation, which remains above Fed target levels
2. Core, which often excludes volatile prices for food and energy, reached 3.3% year-over-year through July—the highest since 2023 and, outside the pandemic, the highest since the early 1990s.
3. AI-related technology faces low tariffs, but prices are rising fast, further driving inflation in core goods.
4. AI-driven demand for memory and computer hardware has pushed up prices for video and information processing equipment a staggering 12.2 percent year-over-year through July, adding roughly 0.4 percentage points to core PCE inflation—comparable to the entire tariff contribution.
“This category has a weight of 2.4 percent in core PCE and has displayed abnormally high inflation rates in recent months,” researchers said.
Researchers, however, noted that prices for video and information processing equipment were falling at the annual rate of 6.5 percent which from 2015 to 2019, making the category’s 12.2 percent price hike an extraordinary reversal driven by AI hardware demand.
5. Clothing and footwear prices surged from 0.3 percent annual inflation in December 2025 to 3.5% by July, one of the clearest signs that tariff costs are now reaching consumers.
‘Delayed tariff pass-through’
The article notes that some of the “worsening” in the core PCE inflation in the first half of 2026 was likely due to delayed tariff pass-through.
Researchers said that even without tariffs, core would still be one percentage point above the Fed’s 2% target. “…absent tariffs, core PCE inflation would still be about 1 percentage point above the Fed’s 2 percent target,” the report suggested.
Researchers argued that high goods inflation mostly reflected elevated price increases in electronics and information technology related to the AI investment boom, while potential tariff effects might still be in the pipeline.
Relationship between inflation and tariffs
While there was no clear correlation between core goods inflation and tariffs in late 2025, a positive relationship has emerged as of July 2026, researchers said.
Heavily tariffed categories are now showing notable excess inflation; for example, year-over-year inflation in clothing and footwear surged from 0.3 percent in December 2025 to 3.5 percent in July 2026.
“Tariff impacts have become more visible in recent months. But they continue to account for only part of the overshoot in core inflation, adding around 0.4 percentage points to core PCE inflation,” the study claimed.
Is further tariff inflation likely to materialise in the coming months?
The report stated that some heavily tariffed categories, such as new motor vehicles, have yet to see sizable increases in inflation.
Moreover, recent additional tariffs on auto parts have been announced. A recent survey conducted by the of New York finds that firms are planning to pass through further tariff-related price increases.
