🟢 [E3721] Medical services, food services, and transportation services are the top core PCE contributors from electricity cost passthrough. These physical-economy sectors face structural cost pressure from higher power prices that cannot be easily automated away, reinforcing the commodity-inflation-in-services dynamic.

🟢 [E3720] Electricity prices have diverged significantly from headline PCE since January 2022, rising 6.8% annualized versus 3.4% for headline PCE. This creates a two-speed inflation dynamic where physical energy costs outpace broader price levels, with regional variation extreme (1% annualized in Louisiana/Nevada versus 15% in Maryland/Maine).

🟢 [E3731] Electricity inflation has varied significantly across states — from ~1% annualized in Louisiana and Nevada to 15% in Maryland and Maine since January 2022. This regional divergence reflects structural differences in generation mix, regulatory environments, and exposure to capacity constraints.

🟢 [E3727] Natural gas prices remain a key driver of electricity costs, with industrial customers more exposed to fuel price swings than residential customers. Wholesale power prices track regional natural gas prices closely, with spare capacity determining the premium above fuel costs. Lower natural gas prices expected in 2028 will help decelerate electricity inflation from ~6% to ~3.5%.

💬 [E3749] Goldman's macro forecast shows unemployment at 4.4-4.5% through 2027, PCE inflation decelerating from 2.8% to 2.3% by Q4 2028, and Fed Funds declining from 4.25-4.5% to 3.0-3.25% by Q4 2027. GDP growth expected at 2.7% in 2026 and 2.1% in 2027, with 10-year Treasury yields stable around 4.2%. This baseline incorporates the electricity inflation drag.

🟡 [E3734] Goldman sees risks to estimates on both sides: more energy-efficient data centers, faster supply growth, or bypass arrangements (companies generating their own power 'islands') would reduce the growth drag. Conversely, continued supply snags or accelerated AI adoption would increase the drag.

💬 [E3722] Goldman estimates higher electricity demand will exert a ~0.1pp drag on GDP growth in 2026-2027, with lower consumption partially offset by higher utility capex. However, this drag is characterized as 'small compared to the large productivity uplift' from AI — the present value of GDP losses from AI-driven electricity prices amounts to less than 3% of AI-induced GDP growth through 2035.

🟢 [E3729] Goldman's baseline US GDP growth forecast is 2.7% for 2026 and 2.1% for 2027, with Fed funds rate expected to decline from 3.5-3.75% in Q4 2025 to 3-3.25% by Q4 2026. Core PCE inflation forecast at 2.1% for 2026 and 2.0% for 2027 (Q4/Q4).

🟢 [E3717] Goldman forecasts AI-driven electricity demand will directly boost headline PCE inflation by 0.1pp in 2026, 0.07pp in 2027, and 0.05pp in 2028. Consumer electricity inflation expected to remain ~6% in 2026-2027 before decelerating to ~3.5% in 2028 on lower natural gas prices. Under higher passthrough scenario (50% vs baseline 33%), electricity inflation would hit 8% in 2026-2027.

🟡 [E3733] Goldman acknowledges several caveats to their wholesale price projections: short-term supply curves may prove more flexible over a full year, policy responses could limit demand growth, and the relationship between peak/non-peak capacity and prices could change. These factors could moderate the price impact.

🟡 [E3725] Goldman acknowledges significant uncertainty in their wholesale price estimates. Supply may prove more flexible over a full year than daily markets suggest, policy responses could limit demand growth, and capacity measures may shift between peak and non-peak periods. More energy-efficient data centers, faster supply growth, or 'island' self-generation could reduce the drag; accelerated AI adoption or power outages would increase it.

🟢 [E3713] Goldman expects data centers to account for ~40% of total US power demand growth over the next five years, with data center share rising from 7% currently. Power demand growth projected at 2.6% annualized 2026-2030, with data centers contributing 1.2pp annually. This creates acute supply-demand imbalances in Midwest, California, Texas, and Mid-Atlantic regions where wholesale prices will spike.

🟢 [E3714] Power supply growth is structurally constrained by regulatory bottlenecks, equipment shortages, and labor scarcity. Median time for grid connection approval has risen to 4.5 years from under 2 years in 2000. Incremental natural gas capacity beyond scheduled additions cannot come online before 2030. Gas turbine and qualified labor shortages compound delays.

🟢 [E3730] Utility capex has become the most important driver of electricity inflation, with capex as a share of revenues increasing significantly since the 2010s due to grid upgrades, renewable energy transition, and retiring coal plant replacements. Capex costs flow through to consumer prices as utilities earn pre-set returns on invested assets.

🟢 [E3732] Computers, communication equipment, and medical instruments face the largest capex price pressures from higher electricity costs. These AI-adjacent sectors will see production cost increases that flow through the supply chain, contributing to equipment price inflation.

🟢 [E3715] Regional power market tightening will be severe due to extreme geographic concentration of data centers — about 1% of US counties account for ~70% of data center capacity. Midwest (MISO), California (CAISO), Texas (ERCOT), and Mid-Atlantic (PJM) face the largest wholesale price increases, with some regions seeing 15-25% price spikes based on supply-demand imbalance projections.

🟢 [E3716] Utility capex is expected to rise ~7% annually through 2029 as companies expand supply to meet surging power demand. PJM capacity auctions in late 2025 cleared at prices 2-3x higher than pre-pandemic levels, signaling significant investment requirements. Capex has already grown from ~25% to ~40% of utility revenues since early 2010s.

🟢 [E3718] Higher power prices will boost core PCE inflation by an additional 0.1pp in both 2026 and 2027, and 0.05pp in 2028, as businesses pass through higher electricity costs to consumers. Medical services, transportation services, and food services account for roughly half of the estimated core PCE boost. Total headline PCE impact is ~0.2pp in 2026 and ~0.15pp in 2027.

🟢 [E3719] Higher electricity prices will exert a ~0.2pp drag on consumer spending growth in 2026-2027 by lowering real disposable income. Lower-income households face disproportionate impact because electricity accounts for a greater share of their spending. Regions with high data center concentration (Virginia, Midwest, California) will see larger income drags than national average.

🟢 [E3723] Data centers employ very few workers relative to electricity consumption — Virginia data centers employ <5 workers per million kWh versus 50+ for US private sector average. Labor share of gross output for data center operations is ~5% versus ~32% for private sector. This means labor income from data centers will not offset higher electricity costs in concentrated regions.

🟢 [E3724] Policy responses are attempting to shift data center infrastructure costs away from residential consumers. Recent state policies (Oregon, Texas, Georgia, Kentucky, Virginia) require data centers >25-150MW to pay for transmission/distribution costs directly. However, Goldman expects non-AI customers to still bear ~33% of excess capex costs due to implementation gaps, loopholes, and market dynamics.

🟢 [E3726] Power outages represent a significant tail risk that could dramatically increase output losses. Power outages cost the US economy ~$8.4 per kWh lost — nearly 50x the average residential electricity price. If tight power markets increase outage duration or frequency, GDP losses would grow substantially beyond the baseline 0.1pp drag estimate.

🟢 [E3728] Capex pricing will also boost core inflation through equipment price increases. Computers, communication equipment, and medical instruments are the largest contributors to capex price passthrough. This adds to the direct and indirect consumer electricity cost passthrough, creating multiple channels for AI energy demand to flow into broader price levels.