US/Israel war with Iran puts AI supply-chains at risk

The US/Israel war with Iran is already increasing supply-chain stress, though the impact has been modest so far. Worse could be yet to come.

• High fuel prices will continue to feed through to freight rates and could eventually weigh on inventories if production in other countries slows down.
• The US’s direct exposure to trade in the Middle East is limited. However, East Asian countries are more heavily reliant on goods produced in the region, including liquified natural gas and helium, which are key inputs for semiconductor manufacturing.
• Supply constraints on the building blocks used to create AI chips could be troubling for the direction of core goods inflation within the US.
• Electronics components prices were already up significantly before the onset of the war, and signs point to larger price increases ahead. We estimate that a 10% y/y increase in the price of computer software and accessories will add 0.1ppt to annual headline and core PCE growth.

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