ChatGPT Generated image. Supply Squeeze in Semiconductor Memory Chips as Data Centers Consume Most Supply

A new inflation fuel besides Oil in the economy today - Semi-conductor memory chips

Till now, there has been talks of inflation that’s seeped into economy as increased Crude Oil Prices had added up to the costs of goods and services we consume as detailed in my earlier article.

From Crude Oil Volatility To Visible Inflation In The Economy

However, in today’s evolving AI era another input component is fueling inflation – adding up to increased costs of computers, smart phones, gaming consoles and appliances.

This component is advanced semi-conductor memory chips – one of the core compute infrastructure components powering Artificial Intelligence compute processes for every AI embedded technology product, enterprise SAAS applications, LLMs etc.

Binance Research has branded this inflation phenomenon as ‘Chipflation.’

Why Oil Price’s decline may not curb off inflation from the Economy

It is a interesting phase to track Chipflation inflation dynamics at play as Energy inflationary forces are expected to tamper down with Crude Oil prices declining to 72$ from elevated ranges of 90$ to 120$ we have witnessed in the past few months.

Decline of Brent Crude Oil prices from 100$ to 72$ range. Tradingview Chart>>

If oil prices remain subdued, one important inflationary force begins to ease. However, prices can continue rising because another inflation driver—Chipflation—remains active.

 Shortage of Semi-conductor Memory Chips driving up prices causing Chipflation

Drastic price rise of advanced semi-conductor memory chips- High Bandwidth Memory (HBM), DRAM flash and NAND memory chips and enterprise SSD is a novel phenomenon in the global economy coming into play only since 2025.

AI Boom created a craze driving massive investment in Data Centres which absorbed most of the supply of HBM, DRAM, NAND chips which has created a shortage of these components for consumer devices – computers, smart phones, gaming consoles etc.

Source. Chipflation impacts under represented by Consumer Price Index(CPI)

This supply squeeze has lead to memory chip shortages for PCs at 15% and smartphones at 12% according to Binance Research estimate.

Excess demand of ‘Semi-conductor Memory Chips’ beyond supply has caused Chipflation.

Prices of Semi-conductor Memory Chip are expected to continue rising coming years…

Global supply of these memory chips is procured from 3 entities - SK Hynix, Samsung and Micron who are the World’s largest semi-conductor memory chip manufacturers.

100% of HBM and 90% of NAND memory chips is procured from semi-conductor memory chip supplies produced by these Companies.

Hyperscalers through advanced orders have locked large proportions of future supply, so Memory chip shortages are expected to persist for the next 2 years.

Supply of these core Artificial Intelligence infrastructure components cannot be increased immediately as scaling of production with expansion of chip production capacity takes a minimum time period of 2 years.

 AI inflation cost seepage into Economy

Current methods of determining inflation like Consumer Price Inflation(CPI) cannot capture the inflation effects caused due to AI memory component – as the index is calculated taking heavy account of Energy, Food, Housing categories. Consumer Electronics weigh lightly on the index – with 0.10 percentile points

Yet – Chipflation effects will be widespread in today’s AI driven Work landscape as their costs add up to various AI powered products and services.

Cost of manufacturing consumer devices like smart phones, game consoles and appliances increase resulting in costlier consumer technology products.

Cloud compute cost increase can make cost of services like SAAS enterprise applications and other services costlier.

AI driven inflation is bound to increase costs of Organisations in today’s age where work processes are executed using AI powered enterprise applications.

 US FED Monetary Policy measures contingent upon prevailing inflation scenario

All this while as Market commentators connected inflation phenomenon playing out due to increased Crude Oil prices, Chipflation was simultaneously playing out with costs of semi-conductor memory chip costs rising since 2025.

As increased Crude Oil Prices has already led to prise rise in the economy and Chipflation is still leading to further price increases, US FED would be cautious in it’s Monetary Policy moves.

If inflation persists, US FED may look to hike interest rate to control inflation.

 Input Categories to calculate Inflation Broadens in today’s AI Era!

Heroically, Crude Oil Prices was factored as a core inflation driver as Oil was the main fuel for driving economic activity of production, manufacturing, transport. Oil was a base input cost for most of the products manufactured and delivered to consumers for consumption. This is why consistent rise in Crude Oil Prices had caused inflation this year.

Now, in the era of AI , semi-conductor memory chip is the fuel powering all compute power required for Artificial Intelligence processes. So, rise in cost of this compute fuel; semi-conductor memory chip, leads to rise in costs of all products and services that use that compute fuel.

Now, inflation computation should also take into account cost of AI compute along with categories of Energy, Food , Housing etc for estimation of inflation prevalent in the Economy.

References

1. Binance Research x Thread Explainer

2. BeInCrypto – Chipflation Is the Inflation Driver Markets Are Missing, Binance Research Warns