The AI Build-Out Is Inflation’s New Driver

Rescue efforts are underway in Caracas following back-to-back earthquakes measuring 7.2 and 7.5 magnitudes, which struck roughly 200 miles west of the capital. The earthquakes have resulted in at least 32 fatalities and over 700 injuries, with the numbers expected to rise. Caracas's main international airport is closed due to damage, and international aid from Mexico, the Dominican Republic, El Salvador, Qatar, and the United States has been dispatched to assist in rescue operations amid widespread destruction.

Anthropic, an American AI research lab, has accused China's Alibaba of illicitly accessing its AI model, Claude, to train their own AI systems through a 'distillation attack,' involving nearly 25,000 fake accounts and over 29 million exchanges. The Chinese company allegedly targeted advanced capabilities such as agentic reasoning, software engineering, and long-term tasks, raising concerns over intellectual property theft. This incident reflects ongoing tensions and competitive dynamics between US and Chinese AI efforts, with possible implications for US policy and international relations.

Justin Lahard from WSJ examines how the AI build-out is now contributing to inflation by increasing the prices of electronic components like DRAM and NAND chips, and subsequently products like iPhones, which could see higher costs. This build-out puts upward pressure on inflation expectations, influencing wages and prices in the economy. Despite inflation remaining below the Fed’s target for years, AI-driven cost increases add complexity to monetary policy decisions. The episode also discusses a new bipartisan coalition aiming to prepare the American workforce for AI-driven disruption, highlighting the broad economic and societal impacts of AI advancements.

Positive corporate earnings, especially from Micron, have boosted tech stocks and futures, with market optimism partly driven by strong earnings reports. Oil prices are falling, signaling potential relief from rising energy costs, but inflation concerns remain due to supply chain disruptions and increased costs related to AI infrastructure. The episode emphasizes how technological advancements and inflation are intertwined, creating both opportunities and challenges for policymakers and businesses.