MeInflation is the biggest challenge facing small businesses this year, according to a report published last month by the National Federation of Independent Business, with a whopping 91% of respondents expecting price increases to be “substantial” or “moderate.” acknowledges that it influences enterprise.
According to the U.S. Chamber of Commerce, nearly seven-tenths of small businesses are raising prices to combat inflation, which is also considered their “dominant challenge.” According to a Goldman Sachs survey, 65% of small business respondents said rising input costs have forced them to raise prices for goods and services this year, and nearly 80% said they have been forced to raise their prices in the past three years. He said the economy had deteriorated over the past few months.
If your business has inflation problems, you are not alone. There is some good news, though. And, unfortunately, I have some bad news. The good news is that inflation appears to have plateaued.
Prices of core materials such as industrial chemicals, construction materials, copper, aluminum, plastics, packaging, steel, and even agricultural commodities such as fertilizers and processed feeds have not plateaued or increased rapidly. Wood product prices have fallen significantly from last year’s highs. Oil prices have fallen 30% since the beginning of the summer.
This is because global supply chains are beginning to show signs of normalization (traffic at the port of Long Beach, CA 84 ships Significantly lower than during the pandemic, with the end of massive lockdowns in China, the Baltic Dryness Index, a key indicator of freight costs and transport demand, has dropped almost 30% year-to-date). Global commodity demand has also slowed overall, which has certainly had an impact on prices, albeit to a lesser extent.
It is doubtful whether the Democrats’ Inflation Reduction Act will have a significant impact on inflation despite its positive impact on climate change and health care issues. “There is low confidence that the bill will affect inflation,” he said. But the good news is that government spending has fallen significantly and the Fed is no longer adding fuel to the fire.
This brings me bad news: we are still struggling with rising costs and that is not likely to change in the near future. Ultimately, consumer prices will remain high over the next few months as the producer price index is seen as a leading indicator. It took a year and a half for inflation to reach this level (consumer prices started rising in March 2021, and he hit 7% by the end of 2021, well before Russia invaded Ukraine). reached). It will take at least that long to return to the more sustainable levels seen in the past.
Because there are many obstacles to keeping inflation down significantly. Some economists, notably former Treasury Secretary Larry Summers, don’t think the Fed’s move is aggressive enough.
Further pressure from the Ukraine war could push up energy and food prices, especially towards winter. Supply chains could be disrupted again as more people are infected with the new coronavirus in China. Even if the global economy begins to grow significantly again in the near future, that growth could strain fragile supply chains and disrupt the pricing of many of the key ingredients we purchase.
So what should small businesses do? Leverage accounting and customer relationship management systems to stay on top of product lines, customer benefits and margins. You raise prices discriminatory and discreetly. Communicate frequently with your customers and expand your supplier relationships. You are always looking for other sources. You try to seal long-term deals and, like many big brands, practice “shrinkflation” where you charge the same price for a little less product. Manage inventory, keep overhead costs low, and keep cash balances as high as possible.
We do all of this because even if inflation has probably peaked, it won’t go away anytime soon. Not in 2012 when interest rates he was hovering around 2%. Now that he’s in 2022, expect core material prices to continue to rise significantly for at least the next 6-12 months. My best clients always plan ahead. Please make a plan for that.