With the Producer Price Index for manufacturing industries increasing by over 15% on a not seasonally adjusted annual basis for the last couple of months, businesses are facing rapidly increasing costs. To remain profitable, companies only have two options, either raise prices or cut costs. In the short run, larger corporations can postpone the inevitable by taking a 3rd option, i.e., “to squeeze margins to maintain volumes” (which is just a fancy way of saying “eat the increased costs”. Small businesses are generally in a weaker position to adjust themselves when inflation knocks at their doors. It is more difficult for Small and Mid-size Enterprises (SMEs) to cope with the situation … [Read more...]
How Can Inflation Affect Businesses?
Inflation can affect business in strange ways. It can be good for business in small doses, but it can also be disastrous if it devolves into hyperinflation. Hyperinflation is often described as massively increasing prices over a very short period of time, for example, in America during the Civil War. But even if inflation doesn't get that bad, the later stages of ordinary inflation such as we saw in the 1980s can still be devastating to businesses. Here are four ways that businesses are affected by inflation or hyperinflation, and what that might mean for their customers and other services they might invest in. #1 It Can Increase Sales In the short run, as the money supply increases, … [Read more...]
5 Ways Inflation Affects the Accounting Industry
Market fluctuations are an everyday element of the accountant’s life. They come and go, subject to the economics, markets, and policies of countries and governments. As an economy enters a period of inflation and sees the cost of everyday products rise, the impact can be felt not only by the individual consumer but also on the business balance sheet. That’s when the accounting industry comes into its own, offering experience and insight into a company’s reporting. Here are 5 ways inflation affects the accounting industry, and how that impacts business. 1. Preparation for Change Becomes a Priority Throughout history, periods of inflation and conversely deflation, have made their presence … [Read more...]
Managing Business During Periods of Inflation
When a currency's purchasing power declines, the average cost of goods and services rise, and the economy in question enters a period of inflation. This affects not only individual consumers and families but businesses as well. COVID-19 has rocked the global economy like nothing we've seen or experienced for a century. And the government's response has been to create massive quantities of liquidity. This means that a period of inflation could very well be on the horizon. If a business is to effectively circumvent this difficult economic period, it should be preparing for the challenges that lay ahead. Here are four things a business can do to prepare for the next inflationary … [Read more...]
Why Inflation Matters to Small Businesses
By: J. Blake Ledbetter, Conoscienti & Ledbetter Price inflation is the term that economists use to characterize an increase in the price of goods and services over time, which reduces the purchasing power of the currency. The bite of inflation often can be slow and painful. When inflation rates rise above 5% however they can be devastating to an economy and especially to small businesses. The rate of inflation is the increase in prices during a specified period. If inflation is at three percent annually, something that costs $100 this year will cost $103 next year. What it means to consumers and businesses is that money doesn't buy as much. Inflation can be especially painful … [Read more...]
What is the Phillips Curve?
The Nature of the Phillips Curve The Phillips Curve is an economic concept was developed by Alban William Phillips and shows an integral relationship between unemployment and inflation. Phillips began his quest by examining the economic data of unemployment rates and inflation in the United Kingdom. He tracked the data over business cycles, and found wages increased at a slow rate when unemployment was high, and faster when the unemployment rate dropped. Business cycles are basically economic activity over a lengthy period of time. Originally, business cycles were thought to be predictable, but they have since proven themselves to be irregular in the areas of duration, frequency and … [Read more...]
Could a Raise in Minimum Wage Trigger Inflation?
Here at Inflation Data we believe that all other things being equal the primary cause of inflation is an increase in the money supply, i.e. "too much money chasing too few goods." But raising the minimum wage may cause other distortions that will have an effect on the economy so that one simple stroke of a pen can still have a major impact. ~Tim McMahon, editor The Law of Unintended Consequences When the Government increases the minimum wage that employers need to pay to their employees, does it cause more problems later? The Government speaks of a raise as a good thing for the economy in order to boost sales (through more disposable income for the poor) and help low-income families pay … [Read more...]
Are Businesses Quietly Preparing for a Financial Apocalypse?
By Dan Steinhart, Casey Research US corporations are sitting on more cash than at any point since World War 2. That's without including banks. I'm only talking about non-financial corporations – the ones that sell goods and services and make the economy go. Those businesses hold $1.4 trillion. In absolute terms, that's the most ever. In relative terms, it's the most since World War II. As investors, we can infer quite a bit from corporations' inability (or unwillingness) to deploy their cash. For one, it indicates that business have assumed a very defensive stance. Cash, of course, is a buffer against uncertainty - the uncertainty that business slows for any reason. … [Read more...]
What Is Inflation Accounting?
What Is Inflation Accounting? Inflation has an effect on consumer prices, to be sure, but there are effects on corporate finance as well. Typically, in developed countries, inflation rates are fairly steady and somewhat predictable. However, in times of hyperinflation, prices soar and corporate financial reports can be misinterpreted without accounting for inflation. Inflation accounting offers a more accurate view of a company or individual’s financial situation because it looks at those finances through the lens of inflation. According to Investopedia "Inflation accounting requires statements to be adjusted according to price indexes, rather than rely solely on a cost accounting basis." … [Read more...]
4 Practical Ways to Keep Your Small Business Profitable during a Recession
Small Business Big Profits Recession is a word that strikes fear into the heart of many small business owners and investors, and for good reason. Reports indicate that the number of failing small businesses drastically increased during the recent recession, and many are still in the process of recovering from insolvency due to the economic backlash. Although a recession certainly decreases the overall demand for products because consumers have less money to spend, there are certain companies in almost every industry that find a way to not only survive but thrive during these harsh financial times. Creatively Outdo Competitors to Increase Profits When people have less money to spend they … [Read more...]