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...]
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...]
A Guide for Business Owners: How to Prepare Your Organization for Inflation
COVID-19 has brought the global economy to its knees and in response, the governments of the world have opened the money printing spigots. The U.S. FED for instance has bought roughly 3 TRILLION in assets this year (labeled "Quantitative Easing 4" on this chart). Many fear that this much "money printing" will result in massive inflation or even hyperinflation. As you can see from the chart below, high inflation rates were the bane of the 1970s and early 1980s when the inflation rate rarely dipped below 4%. By contrast, the period beginning with the new millennium has rarely seen inflation go above 4%. Inflation in the 1970s caused much suffering and business disruption, … [Read more...]
How Does Inflation Affect Businesses?
The fallout from inflation doesn’t always receive a balanced, informed portrayal from the media. This is somewhat understandable since, unless inflation makes a drastic move, its slow steady erosion of purchasing power is not considered newsworthy. However, as with most economic forces, not everyone “loses” when inflation boosts the everyday cost of living. Inflation can actually either benefit or destroy American businesses, and individual preparation for its eventual, inevitable impact often decides how detrimental or beneficial it is. Foreign Exchange International purchases become more costly as inflation diminishes the dollar’s purchasing power relative to other currencies. This … [Read more...]
What Impact (if any) Does Disruption have on Inflation?
What is "Disruption"? According to Dictionary.com: forcible separation or division into parts. a disrupted condition: After the coup, the country was in disruption. Business. a radical change in an industry, business strategy, etc., especially involving the introduction of a new product or service that creates a new market: 2018 is seeing our world change rapidly in so many ways some due to various disruptions. This has caused some people to ask if disruptions cause inflation. This year U.S. inflation as of June is up from 1.63% in 2017 to 2.80% in 2018. Inflation on a global scale is a percent or two higher at 3.15% in 2017, and projected to see out the year 2018 at 3.31%. … [Read more...]
Effects of Inflation on Businesses
When we think of inflation we usually think of how it affects us as consumers. But the effects of inflation are wide ranging, including not only individuals but also businesses and even countries. Consumers and businesses alike have to deal with the impact of inflation, both good and bad. Here are some ways in which inflation affects businesses: 1. Consumer Purchasing This is the most obvious impact to businesses. Rapidly rising prices will cause consumers to (as Samuel Goldwyn famously said) "stay away in droves". There are ways for businesses to plan for inflation to reduce the chances of revenue loss. Gradually increasing prices will prevent a sudden price hike, and if your … [Read more...]
Costs of Inflation in Business
The current UK inflation rate is 2.7 percent. So what does this mean? The term inflation refers to a general rise in the price of a goods and services. This means the price of a basket of goods this year are, on average, 2.7 percent more expensive than last year. See Also: What is the Real Definition of Inflation? Costs of Inflation Most countries adopt a inflation targeting policy; for example, the Bank of England targets the inflation rate at 2 percent. Generally, governments prefer inflation so they can repay their debts with money that is worth less. If they had their way they would inflate their debts away at a much higher rate than 2%. So why is high inflation deemed a bad … [Read more...]