It’s not breaking news that inflation has been on the rise over the course of the past few years. Since the beginning of COVID-19, we have experienced some of the highest, most rapidly changing annual inflation rates since the early 80’s. We see the effects of this daily, as it is reflected in the prices of commodities such as groceries, gas, living expenses, and more. Not only is inflation evident in our day-to-day personal lives, but it affects our businesses as well. In times like these, consumers have less buying power, the cost of supplies and production goes up, and businesses of all sizes are forced to make difficult decisions. So, what exactly does inflation look like at this time, and what can we do to protect our companies from it?
Breaking down the current state of inflation
The U.S. inflation rate has increased overall by 6.4% since January 2022, according to the recently released Consumer Price Index (CPI) update from the U.S. Bureau of Labor Statistics (BLS). This means that the average cost of all items purchased by American consumers was 6.4% higher in January 2023 than in January 2022. Although this is a large percentage, it is still a slight decrease from the 2021-2022 annual growth of 6.5%, which was the highest inflation rate in three decades. In fact, this is the lowest 12-month gain since October 2021, as reported by Forbes. However, the current year-over-year inflation rate of 6.4% is higher than was expected; the same report claims that Wall Street analysts expected this number to be closer to 6.2%.
Using the BLS inflation calculator, the recent CPI-reliant calculations tell us that $1.00 in January 2022 is equal to $1.06 just a year later. Compared to the value of a dollar in January 2020, that same dollar is now worth $1.16 as of January 2023. The 5-8% per year changes between then and now have by far surpassed the average of about 1.6% per year calculated between 2010-2020.
Inflation has gone from 0.1% to 0.5% just between December 2022 and January 2023. Multiple items in the CPI report weighed heavily on the results of the past month’s inflation rate. The greatest contributors included food, gasoline, and natural gas. However, shelter accounted for nearly half of the monthly increase among all items in the CPI.
Despite the rise in inflation over the past few years, many have hope that inflation will continue to drop throughout the year. As officials work to come to a conclusion on how to bring these numbers down, we are essentially stuck in a waiting game of wondering what the future holds economically. The next update on inflation, coming March 14th, will reflect February’s statistics and give us an even better understanding of what inflation will look like over the course of the next year. Whether inflation rises or falls over the next year, it is always important to stay prepared for any economic situation.
Dealing with inflation as a business
Rising inflation tends to hit businesses hard. Here are a few ways to combat inflation when it comes to protecting your company:
Reasonable price raises
Adjust your prices to match inflation and the current needs of your business. These price raises do not need to be drastic; large increases in price may drive customers toward lower-cost options. This is especially likely in times when inflation is at a high, which tightens the consumer’s budget. Consider your competition and market demand when making changes.
Budgeting and planning ahead
No matter the economic situation, it’s always a good idea to keep a close eye on where your money is going.
This includes costs such as materials, labor, shipping and handling fees, and more. If means of production need to change, be sure not to sacrifice quality!
Stay updated on the current and forecasted states of inflation to stay ahead of the curve and anticipate your next move. The economy is subject to change for several reasons on a local, national, or international level; depending on the scale and reach of your company, any of these factors can change how your business operates.
Carefully cut expenses where you can
Regularly review expenses and find ways to cut costs where possible. Look for ways to reduce or eliminate unnecessary expenses and reinvest the savings into the business.
Cost-cutting is a tricky situation; cutting in the wrong places can lead to less profitability for your company.
Try not to cut profitable parts of your operation out of the equation. Departments such as marketing and sales are vital to creating positive cash flow. While budgets can be tightened in profitable areas, do not eliminate them entirely!
One way to reduce spending is to offer more remote positions for your current or prospective employees. Providing remote opportunities where possible can reduce monthly operating costs by cutting down on electricity and water usage in the workplace as well as the cost of office supplies. If need be, this switch may also allow for a smaller and likely less expensive rental space.
Improve productivity and efficiency
Streamlining your work can greatly reduce time spent on projects, leading to better productivity. Ways to streamline timely processes include:
Implementing new time and cost-saving technologies.
Investing in employee training can increase productivity and improve the quality of services provided. Training can improve employees' skills and knowledge, and help them become more confident and efficient in their work.
It may seem counterintuitive, but taking regular breaks and time off of work can actually increase productivity. Encourage employees to take breaks throughout the day and to use their vacation time to recharge.
Communication
No matter what changes need to be made, keep your team updated! Open communication with your employees promotes a healthy work environment and invokes loyalty amongst your staff. As mentioned earlier, your team is a major and vital part of your operation. The satisfaction of your employees is just as important as that of your customers!
When inflation is at a high, everyone feels its effects. The economic situation is at a point where it could change for the better or for the worse. No matter where the economy stands over the course of the next few years, it is important to always stay ahead of the game and take precautionary measures to ensure your business is prepared for anything.
