Future Download
A.I., Crypto & Tech Stocks
AI Is Fueling Economic Growth—but It May Also Be Keeping Inflation Higher
Artificial intelligence is widely expected to transform the global economy by boosting productivity, lowering business costs and driving innovation. But before those long-term benefits fully materialise, AI may be contributing to an unexpected challenge: higher inflation.
According to a new analysis from CIBC Capital Markets, the enormous investment required to build the infrastructure behind AI is adding upward pressure to prices across the U.S. economy. While AI promises greater efficiency in the years ahead, today's spending boom on chips, data centres and electricity is increasing demand faster than supply can respond.
The result is that AI may be helping keep inflation above the Federal Reserve's 2% target, complicating the outlook for interest rates.
Since the early 1970s, the North Sea petroleum system has delivered tens of billions of barrels of oil and built Norway's sovereign wealth fund — the largest of its kind on Earth, now north of $1.7 trillion — almost entirely on the back of one petroleum system.
That same petroleum system runs onshore, across the strait, through east Greenland — and has never been properly drilled.
That's the Jameson Land Basin: 8,400+ square kilometers of onshore Arctic acreage built on the same Permian-Triassic source rocks, the same reservoir architecture, and the same multi-play stacked traps.
Greenland Energy Company (NASDAQ: GLND) is the only Nasdaq-listed pure play targeting it — rights to earn up to a 70% working interest after funding and completing the first two exploration wells, subject to the farm-out terms*(OPW-1 and OPW-6), drilled to 3,500 metres in the October 2026 window.
North Sea geology. Without the wells. Until October.
*Filings indicate 50% after the first well and 70% after the second.
**This is a paid advertisement by Greenland Energy Company
Generative AI has triggered one of the largest technology investment cycles in decades. Companies are pouring hundreds of billions of dollars into expanding computing capacity, purchasing advanced semiconductors and building data centres capable of handling increasingly powerful AI models.
That surge in investment is creating ripple effects across the economy.
Demand has soared for AI chips, networking equipment, cooling systems, construction materials, electrical infrastructure and specialised labour. Utilities are also seeing growing demand as AI facilities consume vast amounts of electricity, prompting new investment in power generation and grid upgrades.
CIBC estimates that these infrastructure-related costs are already adding roughly 0.3 percentage points to the Federal Reserve's preferred inflation measure, the Personal Consumption Expenditures (PCE) Price Index. As additional AI-related spending filters through the economy, the total impact could reach 0.4 percentage points during 2026.
In other words, AI is currently creating enough demand to push prices higher before its productivity benefits begin lowering costs.
AI is becoming a major growth engine
While inflation has become an unintended consequence, AI is also emerging as one of the strongest contributors to U.S. economic growth.
CIBC projects that investment in artificial intelligence—including spending on software, research and development, cloud infrastructure and data centres—will contribute around 0.4 percentage points to U.S. real GDP growth this year.
Another boost comes from financial markets.
The rapid rise in AI-related stocks has increased household wealth, encouraging consumers to spend more. This so-called "wealth effect" is expected to contribute an additional 0.2 percentage points to economic growth as investors feel more confident about their financial position.
Taken together, AI-related investment and rising asset prices could account for nearly 30% of U.S. economic growth in 2026.
Why faster growth can also mean higher inflation
A stronger economy often creates its own inflationary pressures.
As businesses invest, hire workers and expand operations, demand for labour, materials and services increases. When the economy operates close to full capacity, companies frequently respond by raising wages and prices.
Economists refer to this as a narrowing—or even positive—output gap, where economic activity exceeds the economy's sustainable capacity. CIBC estimates AI-driven growth has reduced economic slack enough to add another 0.13 percentage points to inflation this year.
Combined with direct infrastructure spending, AI's total contribution to inflation is estimated at approximately 0.4 percentage points.
What it means for interest rates
The findings present an interesting dilemma for the Federal Reserve.
Normally, stronger productivity growth helps reduce inflation by allowing businesses to produce more efficiently. However, the current phase of AI adoption requires massive upfront investment before those efficiency gains become widespread.
That means policymakers are facing an economy where growth remains robust, unemployment is low and inflation continues to run above target. Under those conditions, the Fed has less room to cut interest rates, even if inflation gradually moderates.
AI is not the only factor influencing prices. Energy costs, trade tariffs, geopolitical tensions and persistent inflation in the services sector continue to play important roles. Nevertheless, AI is becoming an increasingly significant contributor to both economic growth and inflation.
When could AI become disinflationary?
Most economists still believe AI will eventually reduce inflation rather than increase it.
As businesses integrate AI into daily operations, productivity should improve across industries. Automation, software assistants and AI-powered decision-making could lower labour costs, streamline supply chains and improve efficiency, allowing companies to produce more without proportionally increasing costs.
At the same time, today's wave of infrastructure spending is expected to slow once sufficient computing capacity has been built. As supply catches up with demand, pricing pressures for semiconductors, construction materials and power infrastructure may begin to ease.
CIBC expects this transition to become more visible from 2027 onward, when productivity gains are likely to outweigh the inflationary effects of AI-related investment.
For now, however, artificial intelligence appears to be creating a short-term economic paradox. The technology widely expected to help lower costs over the long run is first requiring an extraordinary level of investment—one that is boosting growth, driving demand and, at least temporarily, keeping inflation higher than policymakers would like.
Resources
Thank you for subscribing to the Future Download!
If you need help with your newsletter, email our Arizona-based support team at [email protected]
👩🏽⚖️ Legal Stuff
FOR EDUCATIONAL AND INFORMATION PURPOSES ONLY; NOT ADVICE. Morning Download products and services are offered for educational and informational purposes only and should NOT be construed as a securities-related offer or solicitation or be relied upon as personalized financial advice. We are not financial advisors and cannot give personalized advice. There is a risk of loss in all trading, and you may lose some or all of your original investment. Results presented are not typical. This message may contain paid advertisements, or affiliate links. This content is for educational purposes only.
Please review the full risk disclaimer: MorningDownload.com/terms-of-use
Just For You: Become part of the Morning Download’s SMS Community. Text “GO” to 844-991-2099 for immediate access to special offers and more!