Inflation’s Impact On Data Centers

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.

The annual inflation rate forecast in June is similar to the May figures. The Federal Reserve responded to the sharp increase in inflation by increasing interest rates. On June 15, it raised interest rates by 0.75 percent, its third increase this year and the largest since 1994.

Financial analysts point out that these interest rate hikes could push the US economy into recession. Immediately after this announcement, the S&P 500 stock index fell 20% from its January 2022 peak. Although the market recovered somewhat by July 1, there is still great concern about the health of the US economy.

At the same time that the economy may face spending pressures, the demand for digital information storage and processing is growing and is an essential part of the digital transformation underway in many companies. Continuing digitization will be critical to the success and increase of business opportunities for these companies. What does this mean for digital storage and memory demand, especially for enterprise applications and data centers?

If the economy enters a major recession, many companies will have less income and this will put pressure on spending plans, including spending on storage and memory. This will affect storage and memory companies and we may see some early signs of waning demand and lower prices for different memory technologies (although this could also be due to new memory production capacity coming on line and oversupply).

However, many storage and memory users will want to continue with their plans for digitization, as they see this as the future of their companies. The result could be a stronger boost to spending money to acquire additional technical capabilities as operating expenses, used only when needed, rather than capital expenditures. This may increase the demand for cloud storage and other services.

Additionally, the expansion of remote work during the pandemic and the future continuity of many professional workers (with at least two days a week working away from the office) makes cloud-based services, whether using private or public clouds, essential for many businesses.

Stephen Daniel V May 2022, Digital Storage Technology Newsletter He said: “Starting in 2022, the number of employees working from home will increase at some point during the week… driven by a more informed realization of the benefits of working from home, as well as improvements and changes to the work-from-home environment and infrastructure support. By the end of 2026, The number of employees working from home, in whole or in part, will increase by 35% from the pre-COVID-19 level.”

Another important factor that could continue to drive the use of online meeting services is the high cost and logistical issues related to travel in today’s post-COVID and post-invasion of Ukraine.

Thus, although cloud storage and memory spending can lead to cuts in the short term, it should be one of the fastest wearable areas of technology to meet the needs of modern businesses. With the advent of effective data management for multi-cloud and multi-site data, spending on this part of the storage and memory business will have the fastest return on investment.