AI Infrastructure Driving Inflationary Pressures

I look when people start to gamify investing, right? So when you think about people being rewarded with balloons and fireworks for trading, which we know is the more you trade, the worse offer you're going to be in the long run. I'm Joe Davis. And I'm Christine Kashkari, and this is season two of Better Bantaged by Vanguard, an eight part video podcast series hosted by custom contontent from WSJ and Vanguard Deadly earthquakes rock Venezuela. We'll get the very latest. Plus, Anthropic accuses China's Alibaba of illicitly accessing claud to train its own AI systems Meet Inflations newew catalyst AI buildp. There's a lot of things that go into these data centers There's cooling equipment There's electrical equipment, there's batteries So it puts cost pressures on a number of businesses and those costs are likely to get passed on to consumers. It's Thursday, june twenty fifth. I'm Luke Fargus for the Wall Street Journal and here is the AM edition of What's News headlines and business stories moving your world today Rescue workers in Caracas are working to free survivors in collapsed buildings Back to back earthquakes rocked Venezuela yesterday evening The U.S. Geological Survey said that a seven point two magnitude earthquake was quickly followed by a seven point five magnitude quake two hundred miles west of the capital Soda Anone reported Venezuela's acting president Delsie Rodriguez said that thirty two people were killed and at least seven hundred injured numbers expected to rise Rodriguez declared a state of emergency and said Caracas's main international airport is closed because of damage from the quakes felt as far away as Northern Brazil She said, Mexico, the Dominican Republic, El Salvador and Qatar dispatched to rescue teams to Venezuela. And she also thanked President Trump, who said the U. S. was ready to send The American AI Lab Anthropic is accusing China's Alibaba of carrying out a brazen campaign to harvest the capabilities of its frontier AI model Claude orter Jason Chaow has been reviewing a letter that Anthropics sent to a pair of U. S. senators about what it's calling a distillation attack. Jason, I'm not certain we've talked about distillation attacks here on the podcast directly before. Just how do they work? And what exactly is anthropic alleging here So disillation is simply the process of training AI models by learning from the responses of another usually more advanced model to replicate their capabilities. And so Anthropic is accusing Alibaba and its AI lab, Quinn, of training their model on Anthropicss claod model illicitly. And this is happening on a mass scale. This is not just, you know, a few accounts doing this. Yes. so in the letter, Anthropics said that they found that Alibaba created almost twenty five thousand fake accounts to access Claud and that involved nearly twenty nine million exchanges between late April and early June this year. And so they're accusing Alibaba of targeting some of Claud's most valuable capabilities. so that includes agentic reasoning, software engineering, and long horizon tasks, which are some of the most difficult tasks that an AI model can perform. And Janthropic writes to these senators turning billions of dollars of American R and D into a subsidy a geopolitical competitor, I'm having flashbacks to the sort of Chinese IP theft narrative, which it may be sort of diminished a bit in recent years. I mean just as a way of trying to forecast how this letter is likely to be received in Washington. What is the mood like there on this issue? Have we seen the Trump administration weigh in on distillation? Yes American AI labs, and that's not just anthropic. you know, open AI as well, for example, have accused Chinese AI labs of accessing their models and training the Chinese models on American frontier models without permission. And so that's been signaled to the Trump administration before. The White House has issued a memorandum earlier this year sort of warning Chinese organizations of creating these proxy accounts and then using all types of jailbreaking techniques to distill American models. And they've already said that's unacceptable. But we haven't seen sort of further more severe sanctions or penalties that's been imposed to some of these Chinese firms In the way Chinese AI labs are roughly about depending on who you ask, roughly about six months to atmost a year behind American labs And that gap is widely considered to be shrinking And I' probably guess said that it's a priority for them to make sure that the Chinese AI models do not surpass American models. And this is the latest sort of escalation of tensions. Great. We'll see response we get from Washington and from Capitol Hill, if any. I've been speaking to Wall Street Journal, reporter Jason Chao in Singapore, Jason. Thankks so much. Thanks for having me on. And coming up, we'll get the latest markarkets news. pllus a look at the launch of a new bipartisan coalition aimed at readying the American workforce for major AI driven disruption That's after the break. Still running global payroll like a relay race? Dal replaces fragmented payroll vendors with one global system, no third parties Hire manage and pay teams in one hundred and fifty plus countries with in house local experts and white glove delivery. and deal plugs into what you already use, Workday SAP Netuite. operate like a local, everywhere. Visit dEel dot com slash wsj. That's dEel dot com slashWsj Micron's earnings have revived the AI trade, lifting tech stocks in pre market trading Futures contracts tied to the NASDQ one hundred are rallying after the memory chipmaker yesterday blew past analyst expectations for its latest quarter result seems to have been enough to assuage fears about whether huge investments into AI will ultimately pay off with South Korea's tech heavy Cosy index gaining more than five percent this morning Meanwhile, oil prices continue to fall today, with WTI near pre war levels trading below seenty dollars a barrel. Well, that recent drop in oil probably won't be reflected in today's index of personal consumption expenditures, the Fed's preferred inflation gauge That said, investors are hoping that inflation has peaked after hitting a three year high earlier this month. higher energy, and food prices are largely to blame Journal Economics reporter Justin Lehard explains, so too is the AI buildout ort of the most dramatic thing we've seen is with DRAM and NAN chips, the storage chips You know, they go into everything, your phone, your washing machine, your car. And the prices for these have gone up a lot. And the Wall Street Journal reported that prices of iPhones are poised to go higher because of this. And it's going to have sort of knock on effects on a lot of electronic products. You know, it's like rununaway hyper ininflation here does add upward pressure to inflation in the years ahead. And as the Fed weighs whether to start hiking interest rates, instead of cutting them, as was expected earlier this year, Justin says that people's expectations for inflation will also start to impact prices. Like if you expect more inflation you're going to demand higher wages or if you're business, you're going raise prices to sort of get in front of it. And you know one of the problems now is It's been over five years since inflation has been out the Fed's two percent target And that's a problem for the Federal Reserve You know, the other problem the AI buildout is causing here is a PR problem maybe political problem too If people are seeing prices go up for certain items, and you think, Ohh my go, you know, that's AI making prices go up And in the meantime, people are worried that AI is going to take their jobs away, right? A business that, on the one hand is raising prices And on the other hand, is threatening your job That's not a business that you're real jazzed about. And what are the odds that that exact theme is coming up today with the launch of a new bipartisan coalition aimed at readying the American workforce for major AI driven disruption by former Commerce Secretary Gina Raymondo and former Indiana Governor Eric Hulcombe. The group will study how to transition workers into new fields and plans to propose policy changes like tweaks to unemployment benefits. organizations says it' raised more than a half a billion dollars and counts state governments, philanthropic groups, and big employers as members. Among them, Microsoft, Bank of America, Eli Lillily, and Amazon CEO Andy Jassie told investors in April just how much AI was already changing the company's internal operations. It's going to radically change how we work. It already is. I mean, just look at how coding, agentic coding is changing how we're all building products I think it's going to have a comparable impact on how we do deevOps and how we do customer service how we do research, how we do analytics you know, how sales is conducted. I think every single one of these Um The functions that we all do at work are going to very significantly change. Business groups and lawmakers have warned that more must be done to prepare the U.S workforce for AI related upheaval, with some experts comparing its potential threat to jobs to that of globalization and offshoring in recent decades. And that's it for What's News for For this Thursday morning. Today's show was produced by Daniel Bach and Hadtie Mooyer, our supervising producer is Sandra Kilhoff, and I'm Luke Fargas for the Wall Street Journal. We will be back tonight with the new show Uil then, thanks for listening Isn't home where we all wantanna be? 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