AI boom, tariffs fuel fresh US inflation fears | Cash Call | Andrew Wong

New York Federal Reserve President John Williams recently stated that United States inflation has likely peaked and that price pressures should gradually ease over the coming quarters. However, the latest inflation data tells a very different story. The US June Import Price Index, released last Friday, unexpectedly rose 0.3 percent month-on-month, defying market expectations for a decline. On an annual basis, import prices surged 7.1 percent– the largest increase since August 2022 and dramatically above the consensus forecast of a 0.8 percent decline. These figures suggest that US inflation has not yet peaked and, instead, could face renewed upward pressure in the coming quarters.

Two key factors are driving the sharp rise in US import prices. First, the prices of goods imported from China recorded their largest monthly increase in 18 years. Second, the cost of technology products, particularly semiconductors and AI-related equipment, continues to climb.

The surge in the prices of Chinese imports is partly attributable to the lagged effects of U.S. tariff policies. Many businesses had previously relied on inventories imported before the tariffs took full effect, delaying the pass-through of higher costs to consumers. As those inventories have gradually been depleted, companies have begun passing the additional tariff burden on to customers, leading to higher import prices for Chinese goods. Furthermore, although optimism surrounding the US-Iran situation in June briefly pushed oil prices lower, many manufacturers had already experienced significantly higher production costs due to earlier increases in energy prices and other input costs. As products manufactured under those elevated cost conditions are now entering the market, the resulting price increases are becoming increasingly evident in the latest import data.

Beyond tariffs and energy prices, an even more important structural factor is noteworthy: the persistent boom in global AI-related capital expenditure, particularly in the United States. Investment in AI infrastructure remains near record highs, driving sustained increases in the prices of critical upstream technology components, including high-bandwidth memory (HBM), server components, and other essential hardware. As manufacturers continue to face elevated input costs, technology-related products are becoming more expensive, creating an additional source of inflationary pressure that should not be underestimated.

Moreover, the rapid expansion of AI is beginning to reshape global energy markets. The growing electricity demands of AI data centers have intensified pressure on power grids, contributing to tighter electricity supply and rising power prices in many regions. This trend is likely to reinforce inflationary pressures not only in the United States but also across the global economy, making it increasingly difficult for overall price levels to return to previous norms.

Against this backdrop, expectations that easing geopolitical tensions between the United States and Iran alone could materially reduce inflation appear overly optimistic. Even if temporary improvements occur, the underlying structural drivers of inflation – including tariffs, AI-driven capital investment, supply-chain constraints, and rising energy demand – remain firmly in place. Consequently, inflationary pressures are likely to persist over the coming quarters, not only in the United States but globally.

While sustained inflation would continue to pose challenges for financial markets, whether it ultimately culminates in a severe global equity market correction will depend on a wide range of factors, including monetary policy, corporate earnings, economic growth, and geopolitical developments. Such an outcome remains a possibility rather than a certainty.

Andrew Wong is a veteran independent commentator

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