Inflation in the United States will not go away. Small businesses should plan ahead | Small business in the United States
IInflation is the biggest challenge facing small businesses this year, according to a report by the National Federation of Independent Business last month, with 91% admitting that price hikes have a “substantial” or “moderate” effect on their business. Comp.
The US Chamber of Commerce says nearly seven out of 10 small businesses have raised prices to counter inflation, which is also a “dominant challenge”. Sixty-five percent of small businesses responding to a Goldman Sachs survey said rising input costs had forced them to raise prices for their goods and services this year, with 80 percent saying the economy had worsened over the past three months.
If you are facing inflationary challenges in your business, you are not alone. However, there is some good news for you. Unfortunately, some bad news. The good news is that inflation appears to be stabilizing.
Prices of basic materials such as industrial chemicals, building supplies, copper, aluminium, plastics, packaging, iron and steel, and even agricultural products such as fertilizers and processed feed either stabilize or do not rise rapidly. The prices of sawn timber products have fallen significantly from last year’s highs. Oil prices are 30% lower than they were earlier this summer.
This is partly because the world’s supply chain is beginning to show signs of life returning to normal (port traffic in Long Beach, California, drops to 84 ships Off the coast, much less than during the pandemic, the mass lockdown in China has ended and the Baltic Dry Index, a key measure of shipping costs and shipping demand, has fallen nearly 30% since the start of the year). There was also a general slowdown in global demand for commodities which, while not significant, certainly affected prices.
It is doubtful whether the Democrats’ lowering of inflation — no matter how positive it should have on climate and health care problems — will have a significant impact on inflation. The Wharton School in Pennsylvania says the bill will actually increase inflation through 2024 and has “low confidence that the legislation will have any impact on inflation.” But the good news is that government spending has fallen dramatically and the Fed is no longer pouring fuel on the fire.
This brings me to the bad news: We are still struggling with rising costs and the situation will not change anytime in the near future. Producer prices – at 11.3% as of June – are still above historical levels, and because the PPI is a leading indicator, this means that consumer prices will ultimately remain at elevated levels for the coming months. Inflation took a year and a half to reach these levels (consumer prices started rising in March 2021 and reached 7% by the end of 2021, before Russia invaded Ukraine). It will take at least that long – hopefully – to get back to the more sustainable levels we’ve seen in the past. It may take longer.
This is because there are a lot of obstacles in the way of taming inflation dramatically. Some economists, notably former Treasury Secretary Larry Summers, believe the Fed’s moves are not aggressive enough.
More pressures from the Ukraine war could drive up energy and food prices, especially as we approach the winter months. More cases of Covid in China could disrupt the supply chain again. Even if the global economy begins to grow exponentially again in the near future, this growth could put pressure on our fragile supply chains and disrupt pricing for many of the essential materials we buy.
So what do you do if you are a small business? You can take advantage of your own CRM and accounting systems to stay on top of your product lines and customer profits and margins. You raise prices discriminatory and cautiously. You communicate frequently with your customers and expand your relationship with your suppliers. You are constantly looking for other sources of supply. You’re trying to make long-term contracts, and like many big brands, you’re practicing a “deflation” approach, charging the same price for a slightly lower product. You can keep your inventories under control, lower your overheads and your cash balances as high as possible.
You do all of this because, even though it has peaked, inflation isn’t going away any time soon. It’s no longer 2012, when rates were hovering around 2%. It’s 2022, and you can expect prices for your staples to remain significantly high for at least the next six to twelve months. My best clients always plan ahead. So plan for it.