Just when I thought we had seen it all, locked down in our homes, waiting for the plague to strike. Then came the Russian-Ukraine war, and now, with the impacts of INFLATION on businesses, no doubt, Hades awaits.
Inflation is when prices rise, but the amount of money people have does not rise to match; when the cost of goods exceeds paychecks.
In the face of inflation – the matter of the moment – manufacturers increase their prices, banks double interest rates, fortune 500 companies empower massive layoffs, etc.
Clearly, inflation hurts businesses. But at its apex, some businesses are more vulnerable than others. Here’s a detailed overview of the impacts of inflation on businesses, plus insightful strategies to help you scale.
How Does Inflation Impact Businesses Globally?
Inflation impacts businesses differently. How inflation affects your business depends on its unique economic circumstances. Consider factors like:
- What industry is my business in?
- How are costs rising (or falling)?
- What’s the productivity level of my workforce?
- What about the nature of my supply chain; are my manufacturers still in play?
- Is my business in debt?
Grocery stores, healthcare providers, childcare and other businesses providing essential goods and services tend to be recession-proof even when inflation hits an all-time high.
On the other hand, restaurants, hotels, housing, tourism, fashion and many other discretionary businesses suffer great losses.
Major Impacts Of Inflation On Businesses Globally
1. Devalues Unit of Currency
In the face of inflation, the value of your trading currency declines. This doesn’t mean that a rupee becomes a little less than 100 paise or that dollar drops to cents. Instead, the purchasing power of your currency decreases relative to other currencies.
For instance, a barrel of oil which, in an economy with low inflation, costs around $70, goes up; you might have to spend a few extra dollars, maybe $5, $10 or even $20, depending on the impact of inflation on your business.
Sadly, once inflation hits, exchange rates going downhill is almost inevitable.
2. Decreases Consumers’ Shopping Habit
Inflation occurs when prices and paychecks go out of balance – rising prices; low salaries. When stuff like this happens, consumers run for cover, looking for ways to buy more with less.
That’s why the higher inflation gets, the lesser consumers spend.
As a business owner, expect consumers’ shopping habits to go down. Some consumers might slash discretionary offerings, such as buying electronics off their budget; others might look for cheaper payment alternatives or switch to lower-priced options.
3. Shortages of Raw Materials
Industries worldwide are facing inflation due to the repercussions of global events – from the coronavirus pandemic to the Russia-Ukraine war. So it’s no news that raw material prices are surging across markets.
For instance, copper & CRGO are facing a never before seen price escalation of 55%, and steel & oil prices are constantly rising.
This high market volatility is undoubtedly testing the resilience and reliability of the global supply chain, making raw materials limited and somewhat more expensive.
4. Increased Interest Rates
Policymakers try to keep inflation in check by monitoring and curbing consumers’ spending habits. That’s why the moment inflation hits, interest rates go up. The idea is to dampen consumers’ animal spirit to risk appetite and spend on only the most essential commodities.
As a business owner, this can impact you in two ways. First, you won’t be able to get any low-interest loans; second, consumers will frown and might even walk away the moment you raise your prices.
