Last week, gamers rejoiced as pre-orders for Grand Theft Auto 6, the most anticipated game of all time, officially opened.
But if you were waiting for this moment to buy a gaming console, you may be in for sticker shock.
The AI-fuelled data centre build-out is pushing up prices across the economy for everything from electricity and skilled labour to smartphones and gaming consoles.
Memory and storage chips, key to data centre infrastructure, have become the bottleneck in the AI supply chain. They also sit inside every other modern electronic device.
Ironically, GTA 6 is cheaper in real terms than its predecessor, but the hardware is not.
The more than doubling of console memory costs is why Microsoft reportedly plans to lift the price of Xbox consoles by up to 30 per cent this August, with the company expecting further increases next year.
Nintendo has also flagged price rises for its Switch console, while Sony has already lifted PlayStation prices twice this year, by over 20 per cent.
Last week, Apple announced immediate price increases of 25 per cent on Macs and iPads, with CEO Tim Cook saying the memory cost increases are unlike anything he has ever seen in any industry in 40 years.
In a statement, the company added:
‘The rapid expansion of AI data centres has created an extraordinary surge in demand for memory and storage. We have never seen a component price increase this much, this quickly.’
The global scramble for DDR and HBM memory is reflected in the soaring share prices of the three largest manufacturers: Samsung, Micron and SK Hynix, which have risen as much as 800 per cent over the past year.
The new demand is coming from the big ‘hyperscalers’ Meta, Google, Microsoft, Oracle, and Amazon, which are expected to spend close to a trillion dollars this year on data centres – and it means traditional users of memory are paying more, which is bad news for inflation.
The effects are not confined to household gadgets.
A recent US survey found most economists expect the AI build-out to add to inflation over the next year, while UBS expects it to be years before AI helps to lower inflation.
It’s more bad publicity for AI, which is already facing backlash over power prices and land use.
In Australia, community groups have started challenging data centre approvals, arguing they compete with households for limited electricity supply and prime housing land.
The Australian Energy Market Operator has warned that data centre expansion could double demand on the power grid, adding to concerns about rising electricity costs.
This comes at a time when electricity prices have already risen by more than 20 per cent in the past year.
The data centre build-out is also pushing up construction wages and costs.
In the US, pay for electrical and wiring contractors rose 6.5 per cent in April from a year earlier, almost double the rate for all other workers.
This is also feeding into broader shortages of construction workers, intensifying competition for skilled labour and pushing up wages.
In Australia, electricians are likely to feel additional pressure from data centre demand.
In a submission to a recent NSW inquiry, industry bodies warned that data centre construction will require thousands of additional trade and construction workers nationally by 2030.
Homebuilders now must compete with Google for that sparky, it means the sparkies can charge more.
‘The data centre build-out is likely to be inflationary in the near term, well before it delivers any material productivity enhancement,’ says Alex Joiner, chief economist at IFM Investors.
‘Construction capacity, skilled trades, and energy supply are all being bid up simultaneously by one sector’s investment surge, landing on an economy with very little slack left.’
Then there is the wealth effect: when a small group of people suddenly have a lot more money to spend, prices rise to meet them, and everyone pays more.
The most striking example is South Korea, where employees at Samsung and SK Hynix are expected to receive bonuses of up to US$500,000, fuelling a surge in luxury spending from sports cars to high-end goods; the Bank of Korea has warned the resulting spending is putting price stability at risk.
The US Federal Reserve has also warned that AI-driven inflation could force interest rates higher this year.
In Australia, where core inflation has begun edging higher again, AI does not need to be the main driver to matter. Any additional inflationary pressure makes the Reserve Bank’s job more difficult.
AI was sold as a utopia of lower costs and higher productivity. The costs, for now, are arriving first.
At least no one will be blaming AI for the inevitable productivity dip when GTA 6 is released.
