Each time I go to the grocery store lately I get sticker shock. It is an immediate reminder of the inflationary environment we’re living in today. Why is this happening? Let me summarize it for you:
The economy was doing fine up until the pandemic and subsequent shutdown of the economy. Many factories and suppliers shut down for periods of time because customer demand was very uncertain and it was still unknown how COVID-19 was transmitted. The U.S. government attempted to infuse people and businesses with cash to compensate for shutting down the country intentionally. Soon after, however, demand for goods came roaring back and the supply chain was unprepared. The backlog in the supply chain led to a shortage in the supply of goods or made it more expensive for companies to expedite the shipping of these goods. This created what economists referred to as “transitory” inflation, meaning, experts believed inflation would return to normal levels once the global supply chain caught back up.
After many months, economists dropped the “transitory” term because inflation continued to accelerate even as supply chains return to more normal levels. Inflation is like opening “Pandora’s Box” and once it begins the Federal Reserve must act quickly to cool it. However, the Federal Reserve did not act quickly because we were still dealing with new COVID-19 variants and the economic data was very unclear.
Now we are in a period where the price of some goods are high due to real global supply chain impacts and surging demand. Think lumber or home-building materials. On the other hand, many large corporations are using inflation as permission to raise prices on their consumers and suppliers. The meatpacking industry has recently entered the crosshairs of Senator Elizabeth Warren and President Biden due to the monopolistic nature of the industry. NPR’s Planet Money recently produced a podcast episode about this story. The Federal Reserve raised rates 25 basis points in their last meeting and has signaled they intend to continue raising rates several more times in 2022.
As a small business owner, it is prudent to be aware that inflation will be around for a while. While you may not be tracking the Consumer Price Index on a monthly basis, you can bet the large companies are, and they are passing these costs along to you. There are tools available to forecast these impacts to your business so you can plan ahead and anticipate the changes to your bottom line. Contact Amp to learn how you may be affected.