Inflation and actions for business owners

We all know the effect inflation is having on our personal spending power. Although the rate of inflation is decreasing, current UK inflation is still above 10%. What actions can you take as a business owner to tackle inflation?

What is inflation?

Inflation is the rate at which the prices for goods and services increases. It’s an unavoidable part of economics, and can indeed encourage spending. When prices are expected to rise, consumers will often buy goods and services now rather than wait.

When inflation is too high, businesses often struggle to set prices as demand outstrips supply.

Elasticity of supply and demand

It is safe to say that the pandemic created a perfect storm of high demand for products. This was a result of many factors including lack of supply, due to production standing still and supply lines stalled. The end result was obvious, price increases elasticity of supply and demand in the marketplace.

In 2022, the war in Ukraine and Russian sanctions have led to a further pressure on energy, fuel and food prices.

These, coupled with record low interest rates, effectively created the high inflation we are all experiencing. The Bank of England as continued to increase the country’s base interest rate in an attempt to curb inflation. This makes it more costly to borrow money, encourage consumers to save rather than spend.

The Bank of England anticipate that inflation may have peaked, but it still sits at over 10%, far above the target of 2%.

How does inflation affect businesses?

Inflation and prices rises don’t just affect consumers. Shifts in the labour market since the pandemic have led to higher wages, with further increases as employees demand higher compensation to keep up with inflation. This contributes to businesses’ rising costs.

Businesses are also affected by supply pressures as they pay more for materials and products. They may face additional disruptions such as longer waiting times and shipping costs. Supply shortages for raw materials are also impacting prices.

What can you do as a business owner?

You need to consider how inflation will impact your organisation from both an income and cost perspective. Now is a good time to audit for your prices and costs.

We suggest you consider the below suggestions:

  • Have you looked at your sales prices to ensure you’re still able to achieve a sensible profit margin on your goods and/or services?
  • Do you need to look at increasing staff salaries to retain talent?
  • Have you updated your budgets and forecasts to account for increased costs?
  • Are there opportunities to expand or enhance the business in light of the economic shifts?
  • Have you reviewed your supply chain to ensure you’re receiving competitive rates?
  • Have you adjusted your business plan to account for these market forces to the macro environment?

It’s worth taking a good look at what your competitors are doing as part of your ongoing competitor analysis. Make sure to focus towards pricing and your target consumers’ ability to be able to afford your product or service.

What can we do to help?

Here at Carpenter Box, we are here to offer you advice to support your business through these challenging economic times.

Please do not hesitate to contact us with any questions around this subject on 01903 234094.