High inflation: What does it mean for your business?
High inflation is hitting businesses and households hard in 2022. Across the world, inflation is running high, thanks to factors like pandemic disruptions, monetary stimulus, and supply-chain issues. You’ll see the effects of inflation at the supermarket and the fuel pump – and in your business.
Eroding each dollar’s buying power
Inflation increases prices, which eats away at the buying power of your dollar. For business owners, that means you’ll encounter higher costs from your suppliers. Materials are more expensive, transport has become far more costly, and basics from office supplies to utilities are all rising in price.
In addition, your employees are probably asking for pay rises. For you and your employees to keep up with inflation, your income needs to increase by at least the same amount as inflation. To achieve that could mean a seriously large wage bill increase for your business.
Rising interest rates
Central banks try to keep inflation at a sustainable level. They react to high inflation by raising their interest rates, which slows the economy and puts a handbrake on inflation. As a business owner, you’ll see this reflected in a higher cost of borrowing, and the same will apply to your home loan.
Inflation does have some side effects that could be positive for your business. First, it tends to push up the value of big-ticket assets that your business might own, like property or plant. Second, it makes debts seem smaller – your debt amount stays the same but hopefully your income rises.
It’s time to raise your prices
With inflation causing you to spend more, your business will also need to raise prices. This is always a sensitive topic to tackle with clients and customers, but at least the way has been paved for you by prices rising across almost every single sector and industry.
If you’re wondering how much you need to increase prices in order to keep up with inflation or maintain your margins, do give us a call. We can run the numbers, test out scenarios and figure out a sweet spot that will work for your business. We’d love to help.