Inflation is showing up in wallets and grocery carts, and it’s natural to wonder what’s behind it. Is artificial intelligence pushing prices higher, or is the story mostly somewhere else?
In this Financial Flash, Mark Gierach looks past the headlines and into the numbers. He explains how reported inflation has moved, what the picture looks like when direct fuel prices are set aside, and why refining capacity matters more to the gas pump than many people realize. Mark also discusses where AI infrastructure fits in: it adds to specific pressures, particularly around electricity and construction, but the evidence points to energy as the larger factor in recent price changes.
Understanding what drives inflation is the first step in planning for it. Watch the full video to see how Mark breaks down the numbers, and reach out to our team if you’d like to talk through what changing prices could mean for your own plan.
Educational content only. Not individualized investment advice. Investments involve risk and are not guaranteed.
————- Full Transcript Below —————–
Welcome to this week’s Financial Flash. I’m Mark Gierach, Portfolio Manager at Stiles Financial Services. Inflation is on everyone’s mind, and its effects are showing up in our wallets and grocery carts. If prices feel higher, you’re not imagining it. But today, I want to take a different look at the numbers to show what’s driving them. There has been some blame placed on AI effects, but as we will see, the effects are more energy related.
We hear a lot about how artificial intelligence will make businesses more efficient and bring costs down. But building all those data centers takes semiconductors, construction workers, electrical equipment, and a tremendous amount of power.
So it’s reasonable to ask: Is AI actually making inflation worse?
I think it’s contributing to some price pressures, but when you look closely at the inflation numbers, the story gets more complicated.
In this chart, the orange line shows reported inflation. The other line estimates what inflation would have looked like if gasoline, heating oil, and utility natural gas prices had stayed unchanged over each preceding year.
We’ve kept food and electricity in the calculation.
Using quarterly averages, reported inflation went from about 3.2 percent in late 2023 to 3.5 percent in the third quarter of 2026.
But after neutralizing those direct fuel-price contributions, inflation is actually lower — by about a full percentage point.
That doesn’t tell us exactly how much inflation AI is causing. And it doesn’t remove indirect energy costs, such the transportation costs of moving construction materials to data center construction sites, but it tells us that fuel prices are an important part of the explanation.
Some of that pressure comes from our ability to make fuel.
This chart shows changes in U.S. refining capacity. Capacity increased in 2023 and 2024, then fell by about 263,000 barrels per day in 2025. Existing refineries have expanded, but last year those additions weren’t enough to offset closures.
California’s contraction has been especially significant. Over the past three years, two refinery complexes stopped refining petroleum, and another converted to renewable fuels. Together, those changes removed approximately 20 percent of the state’s crude-processing capacity compared with its early-2024 baseline. That’s roughly one-fifth of its capacity in a relatively short period.
Why does this matter? You can have crude oil available and still face a gasoline bottleneck if you don’t have enough capacity to refine it.
The West Coast is particularly vulnerable because connections to other U.S. refining centers are limited, California requires a specialized gasoline blend, and replacement imports take time to arrive. Those constraints can push gasoline prices higher and make outages more disruptive. The population size and economic activity in California is large enough to have a profound effect on the US as a whole.
For perspective, the post-COVID inflation surge involved an extraordinary government fiscal boost. One Federal Reserve study estimated that stimulus added roughly two-and-a-half percentage points to inflation—an unusually large demand shock beyond normal economic activity. Supply disruptions also mattered.
The AI buildout definitely contributes to specific price pressures, particularly around electricity and infrastructure. When you separate out the specific inflationary pressures in the refined products markets, that adjusted 2.5 percent inflation is within reason of the stated goals of the Federal Reserve. Additionally, we are experiencing a solid rate of economic growth at the same time with real, annualized GDP growth rate at 2.2% for the second quarter this year. While other risks to be concerned with do exist, the broader economy really hasn’t been in this good of shape in a while.
Thank you for tuning in and make sure you catch us next week for a new topic on the Financial Flash Report.
Disclaimer: End Frame (VO + super) This will be the same for every video
Super: Stiles Financial Services is an SEC registered investment adviser based in Minnesota. Information presented is for educational purposes only and does not constitute an offer or solicitation to buy or sell any securities or investment strategies. Investments involve risk and are not guaranteed. Past performance is not indicative of future results.
