Is your business prepared for inflation?

Business leaders are bracing for the latest inflation reports to be released, anxiously awaiting and wondering "how will inflation impact my business?" The truth is, it depends...

What is inflation?

According to the Federal Reserve: "Inflation is the increase in the prices of goods and services over time. Inflation cannot be measured by an increase in the cost of one product or service, or even several products or services. Rather, inflation is a general increase in the overall price level of the goods and services in the economy"

How will inflation impact my business?

Simply put; costs will go up. The cost to acquire supplies, materials, and even services will increase. This will generally also impact the prices you charge to your customers. Now more than ever, it is important for businesses to clearly understand their costs and supply chain. Without an understanding of these key components of your business, it is difficult to adjust pricing and when necessary, suppliers, as needed.

As suppliers experience similar challenges, it may become necessary to evaluate alternative options for acquiring your goods or making adjustments to ordering quantities. Many businesses just assume they are stuck with their costs. That's a poor assumption and will lead to less margin and less profit. The top-performing companies understand the importance of continuing to evaluate their suppliers, find opportunities for better costs and continue to adjust their procurement practices with the market.

In June 2021, wages experienced the biggest spike since January 2009 according to data from the Economic Policy Institute. Due to a jump of 5.4% to the consumer price index, the net buying power for individuals has only decreased 1.7%. This impact has been huge for businesses as the cost to acquire employees has risen steeply, in line with the rising cost of goods. While in an already challenging labor market, this has added another layer of difficulty for businesses looking to recruit new talent. The efficiency of your staff is the key in this area. There's no margin for wasted headcount in this environment. It's also important to understand your talent market and stand out from other employers pulling from the same talent pool.

What's causing inflation this year?

The Federal Reserve has been warning of short to mid-term inflation for quite some time, and it appears that we are starting to see these numbers truly manifest themselves through the data. Inflation has risen based in part to the economic impacts and recovery from the pandemic, including the increase in consumer spending in markets such as travel and leisure. Another major impact stems from the bottleneck of supply chains and the shortage of materials and goods. According to John P. Micklitsch, of Ancora, the pandemic exposed cracks in the business trend of "just-in-time" inventory.

Although there's a number of reasons for inflation, the trends tend to all point toward the economic and consumer impacts brought on by the pandemic.

Bottom Line

Inflation is a normal market occurrence that should not cause alarm, however, you should continue to remain diligent and continue to understand the numbers behind your business.

Our team is here to help navigate the latest changes. We can help evaluate your supply chain and talent recruiting to develop a strategy that fits your needs.