The Iran war lit inflation’s fuse — now something else is burning. As oil prices retreated on peace talks, the Fed’s preferred price gauge reached its highest point in three years — and the culprit is no longer Tehran. While a ceasefire emerges, a new force is taking over, and this one doesn’t have a peace deal.

• The PCE index hit 4.1% headline and 3.4% core in May, representing the highest readings since 2023 — with nine FOMC members now penciling in at least one rate hike.
• AI data center demand drove computer software and accessories prices up 14.5% from last year — with wholesale electronic components already up 27%.

It gets worse: The price hikes trace back to AI hyperscalers. This year, five major firms are spending $741B on AI infrastructure, up nearly 75% from last year. Unlike the oil shock or tariffs, this is a demand-driven story that could last years. According to UBS, 2+ years are needed before productivity gains cool prices, and Goldman Sachs projects electricity prices rising ~6% annually. That marks a pointed irony for new Fed Chair Kevin Warsh, who once called AI a significant disinflationary force.