It was the best of trends, it was the worst of trends. It was the epoch of artificial intelligence, it was the epoch of artificial inflation.
I’m truly excited to be alive at a time when AI, formerly the stuff of science fiction, is now an everyday reality and promising so many benefits to humankind.
AI is accelerating drug discovery, slashing the cost of protein folding research, diagnosing cancers earlier than human radiologists can, automating the drudgery out of nearly every white-collar job, translating speech across hundreds of languages in real time, and giving the blind a way to see the world through a camera.
AI is giving us all this and so much more. But no amount of techno-optimism can hide the fact that AI is making just about everything more expensive.
While the AI trend is making a tiny number of rich people even richer, the public at large is paying the price through rapidly rising prices; it represents a transfer of wealth from the have-nots to the haves. AI is a machine that eats resources. It eats chips. It eats electricity. It eats water, land, labor, and building materials. AI’s gluttony creates scarcity, and scarcity creates inflation.
Here are all the ways AI is driving up costs for you and me.
AI runs on memory chips and other computing hardware. AI companies buy so many of them that they’ve created a shortage. NAND prices shot up around 246% from the start of 2025 through last December, according to Kingston. Hard disk drive prices in Europe rose 46% in just four months.
The chip shortage pushed smartphone prices to all-time highs — one analyst called it a “tsunami-like shock” to the industry. Beyond that, computer and device prices will climb by 20% by the end of 2026, according to one estimate.
Apple CEO Tim Cook told the * Wall Street Journal* this week that price increases on Apple products are “unavoidable,” citing the
Greedflation has hit the software industry. Salesforce, ServiceNow, and others have increased subscription prices, blaming AI for the hikes. IT spending globally is forecast to grow 13.5% in 2026 over the previous year, reaching $6.31 trillion, according to Gartner, with the bulk of the increase driven by AI infrastructure investments.
The pricing models themselves are getting more complex and more expensive: seat licenses plus API usage plus GPU compute plus data storage plus compliance layers. What used to be one subscription is now five line items.
Enterprise software spending is growing 13.3%, with much of it being price increases on existing contracts rather than new purchases.
The services you buy cost more because companies are burning money on AI and passing on the costs to you. While tokens are getting cheaper, the new reasoning models can use anywhere from several times to tens of times more tokens than traditional models for comparable tasks.
SaaS inflation now runs at 13.2%, which is nearly five times the consumer inflation rate, and a majority of that increase is due to AI costs.
Goldman Sachs forecasts that agentic AI could drive a 24-fold increase in token consumption by 2030, and that applies to the companies that provide enterprise services.
AI data centers draw power the way a city does, pushing US residential electricity prices up roughly 5% on an annual average basis in 2025. That’s nearly double the general inflation rate of 2.7%.
Wholesale electricity prices near data center clusters have more than doubled since 2020. Goldman Sachs says electricity inflation will hover around 6% through 2027.
The utilities build new power plants and transmission lines to serve these data centers, then hand the bill to everyone on the grid. You pay for AI’s appetite, whether you use AI or not.
Your heating bill goes up, too, because the same natural gas that warms your home is being burned to generate power for data centers.
Modern cars are computers on wheels. And a new automotive chip shortage is now underway. Prices for the memory chips that go into cars are expected to rise 70% to 100% in 2026 adding as much as $400 to the price of a car.
Data centers need land near power lines and water. They buy it at record prices, and they outbid the people who would have built homes on it. In Texas, data centers compete directly with homebuilders for utility-ready lots. In Northern Virginia, the data center buildout is squeezing the housing supply in a market that is already short. In Columbus, Reno, and Salt Lake City, data center land deals are pushing up land values beyond anything those markets have ever seen for industrial property. And the houses that do get built cost more, because data center construction has driven up wages for workers by 25% to 30%.
Data centers even compete with public infrastructure projects for the same crews and the same concrete, copper, and steel — driving up the cost of roads and public works.
AI is helping all kinds of companies fleece customers. Research from Carnegie Mellon in 2025 found that AI-driven ranking and pricing systems raise prices.
AI-powered pricing algorithms now set the price of your rideshare, your flight, your hotel room, even your concert ticket. They use AI to estimate the maximum amount you’re willing to pay, then charge you that amount. Called surge pricing or dynamic pricing, the bottom line is that it affects your bottom line.
A 2020 study in the American Economic Review showed that AI algorithms create a poverty premium: They learn that people with fewer alternatives are less sensitive to price, so they charge poor people more.
Here’s another weird phenomenon hardly anyone talks about: When competing companies all use similar AI pricing systems, they can arrive at higher prices together without ever talking to each other. It adds up to a kind of accidental price-fixing.
Higher electricity prices flow through the entire economy. Farms, food processors, trucking companies, and stores all pay more for power because of AI consumption, and they pass those costs down the chain until they’re ultimately paid by food consumers.
Data centers are also consuming land that was once used for farming, forcing some farms to locate further away from population centers.
Data centers receive enormous tax incentives and subsidies from state and local governments. At least 38 states now offer such incentives to data centers, which means funding shortfalls have to be made up by families paying their taxes.
Texas is projected to lose $3.3 billion by 2029. Meta’s got a 20-year sales tax exemption from the state of Louisiana on data center equipment worth an estimated $3.3 billion. Pennsylvania will probably give around $2 billion in data center tax breaks.
AI may one day change the world. But for now, it’s mainly just changing the cost of living.
AI disclosures*: I don’t use AI for writing. The words you see here are mine. I used a few AI tools via Kagi Assistant (disclosure: my son works at Kagi) as well as both Kagi Search and Google Search as one part of my fact-checking for this column. I used a word processing product called Lex, which has AI tools, and after writing the column, I used Lex’s grammar checking tools to hunt for typos and errors and suggest word changes. Why I disclose my AI use and encourage you to do the same. *