Trump Tariff Costs Now Hitting Consumers, AI Factors Boost Inflation Anyway: What Fed Analysis Reveals | Today’s news
New research out last week found that by mid-2026, tariffs and artificial intelligence (AI) factors “made similar contributions to increased core inflation across the United States (US).
Researchers at the Minneapolis Federal Reserve revealed that massive AI demand for memory and computer hardware has boosted core inflation as much as the tariffs President Donald Trump imposed early last year.
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“As the AI investment boom boosts demand for memory and other computer hardware, the spillover into commodity prices appears to be at least as large as tariffs to keep inflation high,” it said Analysis of the Minneapolis Fed posted on Friday, August 28.
The article detailing the study’s findings was titled, “Tariffs pass through to consumer prices, initially delayed.”
Key research points:
1. Since July 2026, tariffs have contributed 0.2 to 0.4 percentage points to core inflation, which remains above the Fed’s target levels
2. Personal Consumption Expenditures Price Index (PCE) core inflation, which often excludes volatile food and energy prices, reached 3.3% year-on-year through July, the highest since 2023 and the highest since the early 1990s outside the pandemic.
3. AI-related technologies face low tariffs, but prices are rising rapidly, further fueling core inflation.
4. AI-driven demand for memory and computer hardware boosted prices for video and information processing equipment by a staggering 12.2 percent year-on-year through July, adding about 0.4 percentage point to core PCE inflation — comparable to the full tariff.
“This category has a weight of 2.4 percent in core PCE and has shown an abnormally high rate of inflation in recent months,” the researchers said.
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But the researchers noted that prices for video and information processing equipment fell 6.5 percent annually, making the 12.2 percent increase in prices from 2015 to 2019 an extraordinary turnaround driven by demand for AI hardware.
5. Clothing and footwear prices rose from 0.3 percent year-on-year inflation in December 2025 to 3.5 percent in July, one of the clearest signs that tariff costs are now being passed on to consumers.
“Tariff transfer delayed”
The article notes that some of the “deterioration” in core PCE inflation in the first half of 2026 was likely due to the delayed pass-through of tariffs.
Even without the tariffs, core PCE inflation would still be one percentage point above the Fed’s 2% target, the researchers said. “…without the tariffs, core PCE inflation would still be about 1 percentage point above the Fed’s 2 percent target,” the report said.
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Researchers said the high commodity inflation mostly reflected increased prices of electronics and information technology related to the AI investment boom, while the potential impact of the tariffs may still be developing.
The relationship between inflation and tariffs
While there was no clear correlation between core inflation and tariffs at the end of 2025, a positive relationship emerged from July 2026, the researchers said.
Heavily charged categories now show significant hyperinflation; for example, year-on-year inflation in clothing and footwear rose from 0.3 percent in December 2025 to 3.5 percent in July 2026.
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“Tariff impacts have become more visible in recent months. But they continue to account for only part of the overshoot of core inflation, adding about 0.4 percentage points to core PCE inflation,” the study said.
Is further tariff inflation likely to emerge in the coming months?
The report said some heavily taxed categories, such as new motor vehicles, have so far failed to significantly increase inflation.
Additionally, additional tariffs on auto parts have recently been announced. A recent survey by the Federal Reserve Bank of New York found that firms plan to pass on further tariff-related price increases.
