When will Inflation end, and how will this impact the Technology World?

It is now clear that the cost of living is skyrocketing. Everything from groceries, and rent, to airline tickets are getting more expensive. Many people are left wondering when the prices will get back to normal.

According to experts, there is no clear answer regarding when prices will go down. However, the answer depends on factors influencing the high inflation rate, like supply chain shortages, consumer demand, geopolitical events, and the war in Ukraine. Managing runaway inflation will not be quick or easy; it might take some time.

With Inflation at a 40-year high, stopping it means the economy will have to slow down. Producers’ ability to get their produce to the market should improve, and a balance of demand and supply will have to be achieved. However, until the Russia / Ukraine conflict ends, these factors may take a long time to fix the economy.

When is Inflation going to End?

While there is no straight answer on when the skyrocketing prices will go down, it is not too far. It also depends on large-scale contributors, like when the hikes in interest rates by Federal Reserve will slow the economy enough to reduce Inflation and when supply chain issues will be tackled. Because of these reasons, many economists and research organizations cannot give a clear answer.

According to Alan Blinder, a former vice-chairman of the Fed and economics and public affairs professor at Princeton, Inflation will not last for years. He said the Inflation would fall as fast and dramatically as it started. Economists are trying to find notable trends in the consumer price index (CPI) components to understand inflation waves. Fed uses CPI to gauge Inflation. However, the personal consumption expenditures price index remains the Fed’s preferred measuring inflation rate method.

For example, food and energy comprise about 22%, shelter costs comprise 32%, services include 60%, and goods 40% of the CPI. So, any slowdown will be impactful. The current inflation wave comes from the goods CPI component. The Federal Reserve hopes to slow down the inflation rate by increasing short-term interest rates significantly reduced as the economy recovers from pandemic-related restrictions. It’s expected that Fed will keep raising the borrowing rate benchmark to around 2.75% to 3% from the current range of 0.75% to 1%.

Possible Solutions

While the Fed is slowing down the inflation rate by increasing interest rates, there seems to be more to be done. One strategy is to borrow a leaf from the 80s when the rise of prices brought similar concerns. According to the National Bureau of Economic Research paper released by Larry Summers, former Treasury Secretary, Fed could be required to increase the interest rate more to bring down the inflation rate to the 2% target. As stated in the paper, in the 1980’s Fed, led by Paul Volcker, increased the interest rate up to 19%, which led to a recession that eventually brought Inflation down that has lasted close to 40 years until the current skyrocketing prices.

Our current presidential administration also claims they have a strategy for bringing down Inflation. He plans to take measures that will fix supply chain issues and reduce the budget deficit amount, which was almost $2.8 trillion in the 2021 fiscal year but is at $360 billion through seven months of 2022 since Congress did not approve additional Covid-19 relief funds. However, the president noted that much of the work of bringing down Inflation lies with the Fed.

How is it Affecting the Technology World?

The US is not the only country with high inflation issues. The increased inflation rate has become a global concern affecting many industries, including software development. Many companies feel the impact as equipment, hardware, and services continue to rise. Inflation is rated second on the issues of concern to many chief executives, just below the impact of the COVID-19 pandemic. This calls for CEOs and CIOs to be educated on Inflation and learn how government policies and regulations could impact the economy and, eventually, technology companies.

Other ways the rise of Inflation affects the tech world include:

Rising labor costs

The demand for tech experts continues to rise. By April 2022, the total number of employer job postings in the US was at 1.6 million, which was a 40% increase in tech positions over the same time in 2021. AS Inflation rises, employers are pressured to increase salaries amidst staffing issues. Many US technology companies, especially those in need of software developers, are forced to boost the pay and pay for supplementary employees.

The rising cost of hiring

Contract costs are skyrocketing, and many tech firms and managed service providers feel the pinch. As a result, many CEOs and CIOs are exploring other locations where contract costs are less competitive. Nearshore software development companies are becoming reliable solutions for excellent technology services.

Many US tech firms are delegating software development tasks to companies in geographical proximity to their country, which ensures there are minimal time differences and communication barriers. As Inflation pushes the costs of hiring high, companies on a budget opt for nearshore software development outsourcing.

Increased backlogs

Tech companies are not immune to supply chain issues due to Inflation. Longer delivery times lead to higher bills. To save on time and cost, US companies are shifting most of their software development tasks to nearshore software development companies, especially when they have massive projects.

Benefits of the US Companies Working with Nearshore Software Development Companies

Nearshore outsourcing has many benefits and can be one of the solutions for many tech companies during Inflation. Apart from having a remote team to help in growing projects, nearshore software development companies grant access to talent at competitive costs. Other benefits include:

• Closer collaboration: the distance between the US business and nearshore software developers is short.

• Cost-effective: businesses use nearshore outsourcing to cut expenses. No need to rent extra space or office or provide employees with hardware and necessary software.

• Minimal time zone difference

• Similar regulations

• Experienced and qualified talents on time

Conclusion

While the effects of Inflation are almost unavoidable, businesses are producing strategies to reduce the impact on their budget. Though Fed is working on slowing Inflation, the answer to the question of when it will end remains unclear. Taming Inflation will require slowly curtailing forces that caused the high inflation rate in the first place. This includes reducing supply chain issues, ensuring a balance of demand and supply, and a mix of other things.

Given how Inflation affects the tech industry, many US companies are shifting to nearshore software development companies to reduce hiring costs and address staffing issues.