The AI Build-Out Is Inflation’s New Driver

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0:33Deadly earthquakes rock Venezuela. We'll get the very latest. Plus, Anthropic accuses China's Alibaba of illicitly accessing Claude to train its own AI systems and meet inflation's new catalyst, the AI build-out. 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 25th. I'm Luke Vargas for The Wall Street Journal, and here is the AM edition of What's News, the top headlines and business stories moving your world today.

1:24Rescue workers in Caracas are working to free survivors in collapsed buildings after back-to-back earthquakes rocked Venezuela yesterday evening. The U.S. Geological Survey said that a 7.2 magnitude earthquake was quickly followed by a 7.5 magnitude quake about 200 miles west of the capital. A esta hora tenemos reportes de 32 fallecidos sin contar aún con... Venezuela's acting president, Delcy Rodriguez, said that 32 people were killed and at least 700 injured, with those numbers expected to rise. Rodriguez declared a state of emergency and said Caracas' main international airport is closed because of damage from the quakes, which were felt as far away as northern Brazil.

2:07She said Mexico, the Dominican Republic, El Salvador, and Qatar have dispatched rescue teams to Venezuela. And she also thanked President Trump, who said the U.S. was ready to send help.

2:20American AI lab Anthropic is accusing China's Alibaba of carrying out a brazen campaign to harvest the capabilities of its frontier AI model, Claude. Reporter Jason Chow has been reviewing a letter that Anthropic 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 distillation is simply the process of training AI models by learning from the responses of another usually more advanced model to replicate their capabilities.

2:59And so Anthropic is accusing Alibaba and its AI lab, Quinn, of training their model on Anthropic's Cloud 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 25 ,000 fake accounts to access Claude. And that involved nearly 29 million exchanges between late April and early June this year. And so they're accusing Alibaba of targeting some of Claude'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.

3:47And Jason Anthropic writes to these senators turning billions of dollars of American R &D into a subsidy for a geopolitical competitor. I'm having flashbacks to the sort of Chinese IP theft narrative, which maybe 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. So American AI labs, and that's not just anthropic, you know, OpenAI as well, for example, have accused Chinese AI labs of accessing their models and training Chinese models on American frontier models without permission.

4:28And 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 a way, Chinese AI labs are roughly about, depending on who you ask, roughly about six months to at most a year behind American labs. And that gap is widely considered to be shrinking.

5:09And I've probably 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 those tensions. Great. We'll see what response we get from Washington and from Capitol Hill, if any. I've been speaking to Wall Street Journal reporter Jason Chow in Singapore. Jason, thanks so much. Thanks for having me on. And coming up, we'll get the latest markets news, plus 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.

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6:16Micron's earnings have revived the AI trade, lifting tech stocks in pre-market trading, Futures contracts tied to the Nasdaq 100 are rallying after the memory chipmaker yesterday blew past analyst expectations for its latest quarter. The 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 KOSPI index gaining more than 5 % this morning. Meanwhile, oil prices continue to fall today, with WTI near pre-war levels trading below $70 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.

6:57That 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. But as Journal Economics reporter Justin Lehart explains, so too is the AI build-out. Sort of the most dramatic thing we've seen is with DRAM and NAN chips, the storage chips. that 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.

7:36So, you know, it's not like runaway hyperinflation here, right? But it 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. If you're a business, you're going to 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 at the Fed's 2 percent target.

8:11And that's a problem for the Federal Reserve. You know, the other problem that the AI buildout is causing here is a PR problem, maybe a political problem, too. If people are seeing prices go up for certain items, you think, oh, my God, 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. So 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?

8:52Led by former Commerce Secretary Gina Raimondo and former Indiana Governor Eric Holcomb, the group will study how to transition workers into new fields and plans to propose policy changes like tweaks to unemployment benefits. The organization says it's 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 Lilly and Amazon, whose CEO Andy Jassy 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.

9:28I 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 DevOps and how we do customer service, how we do research, how we do analytics, how sales is conducted. I think every single one of these 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 this Thursday morning.

10:14Today's show was produced by Daniel Bach and Hattie Moyer. Our supervising producer is Sandra Kilhoff, and I'm Luke Vargas for The Wall Street Journal. We will be back tonight with a new show. Until then, thanks for listening.

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