It may be one of the most familiar words in economics. Inflation has plunged countries into long periods of instability, Consumers’ cost of living depends on the prices of many goods and services and the share of each in the household budget. To measure the average consumer’s cost of living, government agencies conduct household surveys to identify a basket of commonly purchased items and track over time the cost of purchasing this basket.
Producer Price Index (PPI) data, which tracks prices paid to the producers of goods and services, reveals a steep year-over-year price hike for host computers and servers -- a 21% surge over pricing levels in June 2021. The Department of Labor's PPI update, released July 14, also shows a 4.7% price increase for computer storage devices and a 2% increase for professional services, IT technical support and consulting services.
The PPI data bears out the trend toward increasing services prices, with the latest numbers showing a 0.67% month-over-month growth in prices in June.
One interesting wrinkle in the PPI data is that server and storage inflation showed signs of easing in June. Server prices dropped 1.2% month over month, reversing the pattern of steady price increases since September 2021. Storage prices dropped 0.42%. The coming months will indicate whether the price drops are a blip underscoring economic volatility or the beginning of a trend toward lower prices.
- Shortages or cost increases in labor, raw materials or capital goods may cause companies to cut back on production to cut costs. These phenomena can also increase overall supply costs, which companies decide to pass on to consumers.
- Supply chain problems may also occur for other reasons, like monopolies that drive up prices, natural disasters, new regulations or changes in exchange rates for goods shipped from overseas.
- In a cost-pull inflation scenario, demand for a product or service remains the same, even as the price to keep up supply for those products or services increases, or supply simply falls short. If the demand for a product decreases as the price increases, then prices tend to stabilize and cost-push inflation is avoided.
- Rising prices for on-premises equipment seems to be contributing to the cloud shift. In the case of servers, inflationary pressure stems, at least in part, from chipset shortages that have affected a range of products. "We all know that the chipset market has been constrained in almost every form, whether it's automobiles or servers," said Robert Naegle, vice president analyst at Gartner.
- The hardware supply chain also includes the inert gases required for semiconductor manufacturing, Naegle noted. adding another wrinkle to a complex and fragile supply chain, which continues to feel the effects of COVID-19. "Inflation is only the next phase in the supply chain challenge
- With hardware, CIOs can defer spending and extend the use of existing IT resources, Naegle noted. That's not quite the case for services, however, where many CIOs must turn to consultant and msps to supplement internal staff. Gartner earlier this year predicted in 2022, as enterprise demand increases and providers raise salaries to combat attrition.
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