Price pain point: Why inflation could get worse

Zoom in: These circuit boards are the "foundational infrastructure of modern electronics," as the director of the printed circuit board lobby group put it last year.

• They're in everything from smartphones and cars to medical and military equipment and dishwashers.
• In non-industry parlance, these are the green rectangular thingies that they put the silicon chips on.

Where it stands: You already know that prices for computer chips are up a lot because data centers, and AI labs need tons of the highest-level memory chips to run their tech.

• And that demand is driving up prices not only for chips — chipflation! — but also for the boards that they get placed upon, as well.
• Printed circuit boards became a big flashpoint for supply chain concerns coming out of the pandemic — 90% of them are made in Asia. Lawmakers from both parties even repeatedly introduced a bill to re-shore production, most recently in May.

By the numbers: The producer price index for the boards rose 45% in July from the same time last year.

• These are the prices domestic producers of circuit boards charge. The U.S. produces only about 4% of the world's supply. But the number is still illustrative of the pricing squeeze being felt globally.

The intrigue: The proposed legislation wouldn't be of much help now because the war has pushed up prices for board inputs, or what's used to make them, primarily resin and copper.

• A major manufacturer of resin in Saudi Arabia was knocked offline in April after an Iranian attack, and it's unclear if it is operational yet. This one plant makes 70% of the world's high-purity polyphenylene ether resin, per CNBC.
• Prices for electronics are already moving higher (see the chart below), but experts warn we've only begun to feel these shocks.
• The price gains have helped drive up the shares of the biggest memory chipmakers by triple-digit percentages.

Flashback: The situation is similar to what we were seeing when pandemic-driven issues were raising costs for manufacturers and other businesses in 2020, but inflation only started hitting in 2021.

• "It takes at least six months, if not a year, for these price increases fairly far upstream in the supply chain to start to make their way to end users," says Jason Miller, a professor of supply chain management at Michigan State University's business school.
• A lot of suppliers have already locked in pricing through contracts.

"This is why 2022 was a bloodbath from a pricing standpoint," Miller says. "Because you had all these price increases in 2021. A lot of them didn't really start getting passed on till '22, and then you had the commodity shock in '22, and a lot of that wasn't really felt until '23, even."

Yes, but: A major difference this time is the labor market. A few years ago, a hiring boom was driving up wages. Labor costs were a big factor in sustaining inflation.

• These days, the labor market is languishing — and that might keep a lid on price increases.

Friction point: What's truly mind-blowing is that up until this year, the price of chips and computer stuff has nearly always been a deflationary input.

• "We've never seen increases like this," Miller says.

Bonus chart: Flash surge

You're already seeing chipflation feed into the CPI.

The price of computer software and accessories rose 21.2% in July from the previous year, the largest increase on record, according to the data released last week.

• Besides software, the category includes memory flash drives — which have seen their prices double over the past year.

Reality check: Overall, however, inflation looked pretty benign. As Matt wrote earlier this summer, "few Americans are going to cite the cost of flash drives for breaking their budget."