AI-driven inflation is surfacing in unexpected corners of the economy, particularly computer software and accessories, where prices have been climbing despite predictions of cloud software demand collapse. The phenomenon may stem from developers charging premium rates for AI-enhanced products or supply constraints in essential components like flash drives used for AI training. Federal Reserve researchers point to memory chips as the primary bottleneck in AI infrastructure build-out.

Electronics prices jumped dramatically, with PPI for electronics rising 27% in May and imported capital goods climbing 5.6%. Apple amplified concerns by hiking MacBook and iPad prices 20%, while Microsoft boosted Xbox prices by $100. Though electronics represent only 2% of household spending, these moves signal potential broader pricing pressure. Construction wages also reflect strain, increasing 4.3% annually versus the 3.4% economy-wide average.

Meanwhile, European equities appear undervalued relative to US markets, trading at a forward P/E discount. However, this reflects fundamental performance gaps rather than opportunity. S&P 500 earnings have grown 7.8% annually over 15 years compared to Europe's 2.5%, driven by tech dominance. Analysts expect Europe to post near-double-digit earnings growth ahead, potentially narrowing the valuation gap.

For now, AI inflation remains contained to niche categories, validating Fed Chair Kevin Warsh's view that long-term productivity gains will eventually offset early-stage bottlenecks. The real risk lies in whether pricing pressure spreads beyond electronics into broader consumer goods.