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Tech inflation data drops -- what does it mean for IT budgets?

The U.S. government's latest producer price data, which shows declines for servers, storage and services, could signal an economic shift and boost CIO confidence moving into 2023.

The U.S. government's latest inflation data showed declines across servers, storage and professional services, a pattern that could make CIOs feel a bit better about IT investments in 2023. 

The server category saw the biggest drop in the October producer price index (PPI), which the Bureau of Labor Statistics released today. Servers saw a 1.6% month-over-month decrease. Storage prices continued to drop since hitting a three-year peak in May. And professional services prices, which showed a slight month-over-month decline, have been leveling off since May.

The PPI, overall, increased 0.2% in October, less than expected, and the services component of the index decreased 0.1%. Services prices had been increasing for over a year.

A sign of improvement?

If the pricing trend holds, it could reassure technology managers looking for signs of economic improvement, noted John-David Lovelock, vice president analyst at Gartner.

"CIOs are hesitating and waiting for certain conditions to clear before they start any new, big initiatives," he said, adding that the uncertainty took hold during the summer.

CIOs are hesitating and waiting for certain conditions to clear before they start any new, big initiatives.
John-David LovelockVice president analyst, Gartner

In addition, Lovelock said the PPI numbers are in line with the economic  expectations Gartner built into its latest IT spending forecast, which calls for 5.1% growth worldwide in 2023.

Natalie Kaminski, co-founder and CEO at JetRockets, a software development agency based in New York, said inflation has been one of many macroeconomic factors affecting C-level technology managers. The company last month surveyed more than 450 U.S. CIOs and CTOs: 45% of the respondents reported their organizations are cutting 2023 budgets and 31% believed a cutback would occur.

"If these inflationary trends are slowing down, it will definitely help," Kaminski said. "But I don't think it will provide the relief CIOs hope for, considering how much their role has changed and how much they're now expected to take on."

The JetRockets survey noted 39% of the CIOs and CTOs polled are either experiencing burnout or worried they lack the resources and support to do their jobs.

Chart updating PPI for storage, services and servers
PPI data for key IT commodities declined in October.

Professional services boost for CIOs

Kaminski, however, cited the drop in the PPI for professional services as a positive sign.

"This will hopefully free up more budget for CIOs to outsource software development amidst this global skills shortage," she said.

Lovelock said the professional services pricing trend could help CIOs ask their contractors for more pricing assurance going forward. Wage growth has fueled increasing professional services prices. But the recent economic data suggests that while wages aren't plummeting, they aren't going up much either, Lovelock said.

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