Bank economists are predicting the CPI to top 7% and hold that level for many quarters.
Not since the 70s and 80s when 15% inflation rates per annum became the norm have we seen such a quick rise in the CPI. To lift from almost nothing to over 7% in a few months is incredible. Your $1 in 2020 can now only buy 93 cents worth of value.
What does it mean for your business?
It means that you must protect your margins vigorously. To say she’ll be right, and I’ll look at increasing my prices when I catch up with my accountant at annual accounts time in June, will see your margins erode in short order.
You owe it to your stakeholders to be vigilant on your costs and selling prices. You must preserve your margins in order to survive the next few years.
Keep the pressure on your supply chain.
Keep increasing your prices in small, regular and in closely timed steps.
You are not the cause of inflation, so tell your customers of the pressures you are under. Avoid buying market share unless you can be sure that when your prices eventually have to go up, you retain the share you captured. Chasing economies of scale usually requires an increase in working capital and banks at present aren’t lending easily.
Spread your supply chain risk by country if you are importing, but also hold onto your current suppliers. In inflationary times strong buying relationships can drive immense benefits to you and your entity. Just getting product is sometimes the paydirt of your investment in building great relationships. Be loyal where you can.
Somewhat conflicting advice, I know, but strong inflation coupled to the supply chain disruption, makes business chaotic. Businesspeople love certainty, and unfortunately inflation has a long history of scuppering business confidence.
Every business relationship is unique but all need nurturing. Time and energy invested with your suppliers and customers will pay dividends and may ensure your survival.
Banks are getting wary of lending and are re-evaluating their business lending. Some may increase their pressure on businesses to clean out what they perceive to be high risk accounts. The IRD has been quiet for two years but must get back into tidying up its backlog of recalcitrant accounts soon.
On top of all of this we have the fight for good staff. The pressure of increasing pay rates and increasing inflation are a spiral that this generation has never had to deal with. It is little wonder we are now seeing a new phenomenon in the departure from business of the Baby Boomers as they retire. Demographic shifts are usually substantial but this one is tectonic. The customer and supplier relationship you have built up over many years may change rapidly. Keep in touch with both and protect your business network. It is your net worth.
