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Inflation hits hardware and services, driving up technology costs

Inflation is impacting IT budgets, driving up costs in areas such as servers, storage and professional services. This environment appears to be accelerating the shift of CIOs to the cloud for enterprises, which is projected to grow by more than 20% by 2022.

Producer Price Index (PPI) data, which tracks the prices paid to producers of goods and services, reveals sharp year-over-year increases in host computer and server prices. The latest version of the Labor Party’s PPI update, released on July 14, also showed a 4.7% increase in prices for computer storage devices and a 2% increase in prices for professional services, IT technical support and consulting services. It has been.

CIOs cited rising technology costs as their top challenges in 2022, along with the IT skills shortage and infrastructure changes required to accommodate the return of employees to the workplace.

However, according to Gartner, which recently updated its forecasts for the global IT market, higher prices don’t necessarily dampen CIOs’ investment plans. Market researchers forecast his IT spending to reach $4.5 trillion in 2022, up 3% compared to last year. Gartner’s latest spending forecast is in line with the forecast announced in January 2022.

But one of the inflation-related changes is pressure on cloud spending, which Gartner expects to grow 22.1% in 2022. Gartner cited rising prices and delivery uncertainty exacerbated by Russia’s invasion of Ukraine as accelerating the shift of CIOs’ buying models away from IT. We provide asset ownership as a service.

Rising physical hardware costs can impact cloud spending growth.

Rising prices for on-premises equipment appear to be contributing to the cloud shift. For servers, the inflationary pressure is due, at least in part, to chipset shortages that have impacted various products. Gartner Vice President Analyst Robert Naegle said:

Inflation is just the next step in the supply chain challenge.

Robert NagleVice President Analyst, Gartner

The hardware supply chain also includes the inert gases required for semiconductor manufacturing, Naegle said. Ukraine is a major supplier of these gases, a complex and vulnerable supply that continues to be affected by COVID-19, adding a new problem to the chain. “Inflation is just the next stage of supply chain challenges,” he said.

Using hardware allows CIOs to defer spending and extend the use of existing IT resources, Naegle said. That’s not the case, however, for services where many of his CIOs have to rely on consultants and her MSPs to supplement internal staff. Earlier this year, Gartner predicted higher IT service fees in 2022 as business demand increases and providers hike salaries to combat job cuts.

PPI data confirms the upward trend in service prices, with the latest figures showing June prices up 0.67% month-on-month.

One interesting aspect of the PPI data is that server and storage inflation showed signs of easing in June. Server prices fell 1.2% month-on-month, reversing the pattern of steady price increases since September 2021. Storage prices he fell 0.42%. The coming months will show whether falling prices are moments that highlight economic volatility or the beginning of a trend towards lower prices.

In the meantime, CIOs should take a more rigorous look at technology spending in the wake of inflation. Naegle said CIOs need to critically assess demanding spending, optimize existing assets, and align IT investments with business outcomes.

“I think this time really represents an opportunity for many IT organizations to fine-tune their operations and think more proactively about ‘Are we doing the right thing?'” said Naegle. I’m here.