Abhi: Dad, remember the MacBook Air you promised to get me? Well, guess what. Its price just went up by $200! If only you had bought it for me earlier without arguing…

Raghu: Hey relax, take a breath. Tell me what happened.

Abhi: You know, the MacBook variant I wanted to get, it used to cost $1,099 before. Last week Apple increased its price to $1,299!

Raghu: That’s substantial! About 20 per cent, isn’t it?

Abhi: Yeah. Apple didn’t just stop with the MacBooks. They have hiked prices of pretty much everything they sell, including your favourite iPad. But interestingly, they have spared the iPhones.

Raghu: Why the sudden move?

Abhi: Thank AI! Let me explain. Apple is increasing prices because price of memory chips have been rising exponentially for over a year now. Specifically, chips like RAM and NAND flash memory. These are found in smartphones, cameras, PCs, smart TVs, gaming consoles and car infotainment systems. Apple stated that they had never seen a component’s price increase so much that they wouldn’t be able to shield consumers from this inflation anymore.

Why are memory prices up, you ask? There is a massive buildout of AI data centres happening now and these data centres need vast quantities of memory chips to run. Demand for these chips has skyrocketed and the supply is nowhere close to meeting this level of demand. Hence the inflation.

Raghu: Wow! Is it that bad?

Abhi: You bet. Memory chip suppliers are scrambling to meet this demand — often diverting consumer chip manufacturing capacity towards AI chips, as they are getting better prices there.

Sample this. Memory giant Micron reported its latest quarterly earnings last Wednesday. Average selling price (ASP) of their DRAM chips went up a whopping 60 per cent plus for the quarter ended May 2026 versus that for the quarter ended February 2026. ASP of NAND chips grew 80 per cent plus in the same period. Micron’s gross margin which was 39 per cent a year ago is now twice at 85 per cent.

Silicon Valley powered by Wall Street seems to be ready to blindly pay whatever is demanded for these chips, to stay ahead in the AI race.

Raghu: This feels like a UNO reverse of what happened after Covid. People started working from home and they needed all kinds of digital implements from laptops to headphones. Manufacturers diverted capacity towards consumer chips, causing a deficit of industrial chips.

Abhi: Exactly. The economists at St. Louis Fed, USA, did a study. They observed that industries that use semiconductors as a direct input account for about 40 per cent of all manufacturing output. In July 2021, they found that while prices of output of industries that do not depend on semiconductors rose by about 9 per cent, those of the output of industries that depend on semiconductors rose higher by about 13 per cent.

Raghu: I guess the automotive industry would have been one of the prime casualties. Remember how we had to shell out more when we bought our car?

Abhi: Of course. Cars these days, use semiconductors and the auto industry was one of the most impacted ones then. New car supply was severely constrained because of this chip shortage. I remember reading about how used car prices in the US climbed about 30 per cent in May 2021, accounting for about one-third of the overall monthly CPI increase.

You are right drawing parallels with post-Covid times. But there is a difference. While the post-Covid inflation was to some extent a supply side problem — in the sense that, manufacturing was hindered by lockdowns, the inflation we are seeing now is purely a demand side problem — too much money chasing too few chips.

Raghu: Hmm… If that’s the case, will prices of anything that uses a memory chip go up? I was just about to make peace with crude oil-led inflation.

Abhi: It’s likely dad. Social media has even come up with a cool name for this phenomenon — ‘AI-flation’. Personal computers have already seen prices inflate. Walking Apple’s path, Microsoft hiked the XBOX’s price. If cloud providers eventually pass on the inflation, all services that use the cloud may become expensive.

But objectively speaking, AI-flation may not directly have a material impact on the overall retail inflation index. In India, the ‘information and communication equipment and services’ cohort just accounts for about 3 per cent of the CPI basket, while a similar cohort in the US constitutes 3.2 per cent of urban CPI basket. However, it remains to be seen if there will be an indirect or second order impact on the overall index — like how chip shortage affected CPI through used car prices in 2021.

Raghu: I see.

Abhi: That’s not all, dad. What we must not forget here is the wealth effect. Investors and employees of AI and chip companies are becoming richer by the day. Stocks are at elevated valuations. Think SpaceX, Micron investors. Reports suggest that a Samsung memory chip worker with a base salary of $53,000 is expected to receive a bonus worth $416,000 as part of an AI profit-sharing deal. As this new wealth finds its way into spending, it can stoke demand, likely resulting in inflation in their respective economies.

In my view, it’s too soon to conclude whether to take AI-flation seriously or to dismiss it altogether. But it’s certainly interesting to watch this space.

Raghu: Makes sense. You know what? Forget the price hike and order the MacBook. Consider it my contribution to AI-flation — and a small ‘thank you’ for teaching me something today.

Published on June 27, 2026