The artificial intelligence investment boom is driving inflation across supply chains and labour markets, although two very different scenarios could ultimately lead to easing price pressures by late 2027, according to CIBC Capital Markets.
CIBC chief economist Avery Shenfeld said the rapid expansion of AI infrastructure is pushing up costs across the economy, with higher trucking charges, increased demand for construction materials, more expensive memory chips filtering into personal computers and continued tightness in labour markets outweighing the productivity gains AI has delivered so far.
According to Shenfeld, businesses deploying AI tools have experienced uneven results.
”Corporates deploying AI for employees have seen mixed results, with some reaping time savings, others having those benefits outweighed by escalating token costs,” he said.
CIBC said the inflationary effects of AI have already complicated the US Federal Reserve’s policy outlook. Federal Reserve Chair Kevin Warsh, who last year pointed to AI-driven productivity improvements as a reason to support lower interest rates, now faces the possibility that persistent inflation linked to AI investment could require tighter monetary policy.
The bank outlined two possible paths that could eventually ease inflationary pressures.
In the more optimistic scenario, continued AI adoption over the next year would generate meaningful productivity gains as companies focus spending on applications where labour savings exceed token costs. That could lead to slower hiring or job reductions in roles displaced by AI, easing wage pressures.
At the same time, growth in data centre and power plant investment would moderate, helping to stabilise semiconductor prices, while a greater reliance on imported equipment rather than domestic construction could reduce strain on US economic capacity.
Under the more pessimistic scenario, companies would scale back AI deployments that fail to generate adequate returns, reducing spending on AI services and token usage.
A broader reassessment of the AI investment story by capital markets could also curb project spending, weaken overall demand and ease supply chain bottlenecks. CIBC added that a significant equity market correction triggered by disappointment over AI could dampen consumer spending and eventually encourage the Federal Reserve to loosen financial conditions.
Despite the differing assumptions, both scenarios could produce disinflation over time.
However, CIBC warned that the timing remains highly uncertain. The bank said financial markets could continue funding rapid AI investment for another one to two years if expectations for returns remain strong, allowing hyperscale technology companies to keep expanding capacity and sustaining pressure across supply chains.
”While there’s a solid case for AI inflation to prove transitory, and for the Fed to bet on that outcome, it might not be able to sit back and do nothing if core inflation stays too hot in the interim,” Shenfeld said.
CIBC’s base-case forecast remains that the Federal Reserve will not raise interest rates this year, although it said that outlook depends on incoming economic growth and inflation data. The bank added that any AI-related rate increases could eventually be reversed if inflation moderates as expected.
