IMPACTS OF INFLATION
IMPACTS OF INFLATION
Inflation and the Cost of Doing Business Annual inflation rate in the United States accelerated to 7.9% in February of 2022, the highest since January of 1982, matching market expectations. Energy remained the biggest contributor — 25.6%, with gasoline prices surging 38%. Inflation accelerated 4.7% for shelter; food 7.9%— the largest since July of 1981, namely food at home at 8.6%. New vehicle costs increased 12.4%; and used cars and trucks 41.2%. Excluding volatile energy and food categories, the Consumer Price Index rose 6.4%, the most in 40 years. The surge in energy costs due to war in Ukraine is still to come. Recent developments in Europe coupled with the ongoing supply constraints, strong demand, and labor shortages will likely maintain inflation elevation for longer. Source: U.S. Bureau of Labor Statistics
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o one knows how long the current drift of inflation will last, but economists believe the trend could last for years, and the Federal Reserve agrees things may not be temporary. Even Elon Musk is talking about the pinch of inflation in the current national and global economic climate. In a March 13 Tweet, Musk said, “As a general principle...it is better to own physical things like a home or stock in companies you think make good products, than dollars when inflation is high.” MicroStrategy’s Michael Saylor tweeted back, “USD consumer inflation will continue near all time highs, and asset inflation will run at double the rate of consumer inflation. Weaker currencies will collapse, and the flight of capital from cash, debt, and value stocks to scarce property like bitcoin will intensify.” For those who are not billionaire entrepreneurs, owning a home and a small business is the backbone of lifestyle and livelihood. The federal government much shoulder blame for the inflated cost of doing business, having printed money to cover an unnecessary third stimulus package. Congressman John Carter (TX-31) weighed in
on how perspective is important to the American middle and business class. “President Biden even asked Congress for more COVID money this week. It goes to show that this administration is disconnected with the real world and they can’t even see how bad their policies are hurting Americans.”
WHAT DO WE DO? As business owners, unlike the inflationary spikes of the 1970s and 2008, companies have unprecedented volumes of consumer data as well as greater visibility and flexibility in the marketplace. Modern digital tools allow managers to turn data into decisions, which means there are new opportunities to see inflation as a strategic opportunity. Instead of worrying about how much more to charge customers to pay your own costs, it is a good time to study how and why you are charging. Perhaps it’s time to study behavioral patterns and change price gaps to steer customers toward more profitable—rather than expensive—offerings.
2022 • ISSUE 2 | WILCO BUSINESS REVIEW
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