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Recently I’ve been thinking about the impact of historically high inflation and interest rates on data center growth and thus digital storage and memory demand. First, let’s look at the recent US inflation and interest rate announcements and then talk about their potential impact on data centers.
According to the US Bureau of Labor Statistics, “US annual inflation unexpectedly accelerated to 8.6% in May 2022, the highest rate since December of 1981 and compared to market expectations of 8.3%. Energy prices rose 34.6%, the largest share since September 2005, due to gasoline (48.7%), fuel oil (106.7%, the largest increase ever), and electricity (12%, the largest increase in 12 months since August 2006) and natural gas (30.2%, the highest percentage since July 2008).
Food costs rose 10.1%, the first increase of 10% or more since March 1981. Significant increases were seen in the prices of meat, poultry, fish and eggs (14.2%). Further increases were also seen in the cost of shelter (5.5%, the largest since February 1991), home and operations furniture (8.9%), used cars and trucks (16.1%) and airfares (37.8%) while the cost of new vehicles eased. Slightly (12.6% vs. 13.2%).”
There are many factors driving this inflation, including supply chain problems, shortages of critical components and infrastructure (such as a shortage of fuel refining capacity) as well as government spending to try to avoid a major recession during the COVID pandemic.