The first shock was due to the supply-chain chaos in 2021 through 2022. The second shock is now, it’s huge, and it’s due to the AI investment boom.

By Wolf Richter for WOLF STREET.

The US imports about $3.3 trillion worth of goods a year currently, and so import prices matter to inflation in the US. Import prices had exploded during the first wave of inflation in 2021 through early 2023 amid the supply chain chaos and shortages at the time. Then import prices fell and gave up part of those price gains and then remained relatively flat until the beginning of this year.

Over the first six months this year through June, import prices of all goods have shot up by 6.6% to a new record high. Year-over-year, they’re up by 7.1%, according to the Bureau of Labor Statistics today (import prices do not include tariffs, they’re measured at the “water’s edge”).

The chart shows the price level (not the percentage change of the price level).

There are a lot of complexities that confuse the image. For example, prices of fuels shot up this year into May, then began plunging through June. But the US is the largest producer of crude oil, petroleum products, and natural gas in the world and runs big trade surpluses in energy products, exporting more than importing. And because prices of these exports by the US – primarily distillate (diesel), gasoline, jet fuel, pet coke, propane, ethane, butane, natural gasoline, and crude oil – have also shot up, the US economy overall (though not the consumer) benefits economically from higher prices of these products. This is not the 1970s anymore when high fuel prices just sucked the money out of the country.

Another complication is nonmonetary gold, whose price had spiked last year and into early this year, but has plunged since then. But nonmonetary gold has relatively little impact on the US economy and on inflation.

So we’re going to look at import prices of manufactured goods – and particularly of computer and electronic products, where the price action now is.

Import prices of manufactured goods have risen by 4.2% over the first six months this year, and by 5.0% year-over-year, according to the BLS today. The big driver was the surge in prices of imported computers and electronic products.

The US imported $2.9 trillion of manufactured goods over the past 12 months.

Import prices of computer and electronic products, a subgroup of manufactured goods, have shot up by 7.4% over the first six months this year, and by 8.0% year-over-year.

This is particularly interesting because prices of tech products have a long history of dropping as manufacturing processes have evolved and tech products have gotten immensely better over time. That $600 laptop we bought a couple of months ago has memory and computing power that would have required a big-box computer costing tens of thousands of dollars 30 years ago.

Between 2006 and 2019, the import price index for Computers and Electronic Products declined by nearly 30%. These products were a substantial deflationary factor in the inflation scenario through 2019.

The first shock to the long-term price declines came during the supply chain chaos in 2021 through 2022, when shortages of all kinds, including chip shortages, hit the industry, amid pumped-up demand from the shift to working at home and learning at home.

The second shock is now. And it’s huge, far bigger than the first shock. And this is one is caused by the AI investment boom that is sucking up semiconductors, servers, and all kinds of electronic components that are running into manufacturing capacity limits.

Giant companies with immense amounts of cash on their balance sheet, with immense funds raised from investors through equity and debt offerings, and startups of all kinds, are chasing after these products to build out their AI infrastructure, and in the desperate effort to get there first, they’re blowing money left and right, including for these products.

There are already reports of these import price increases migrating from corporate customers to services that consumers pay for, and to products that consumers buy, such as smartphones, laptops, all kinds of gadgets, appliances, etc.

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