Even if you aren’t a regular reader of the newspaper’s financial pages, chances are you’ve heard talk of inflation. It’s an economics term referring to an overall price increase for the goods and services people use each day, and it’s been making headlines in recent months. But why do prices increase with time — and how exactly does it impact the people and businesses in affected areas? We’re glad you asked. Read on for a helpful inflation overview from your friends at Central Bank.
The Causes Behind Inflation
As with any economic change, there is no singular event that causes prices to rise. Increases in raw material costs lead to heftier prices for finished products, for instance, while the same is true when interest rates or import/export taxes rise. Of course, economics’ basic principle of supply and demand also comes into play. When you don’t have enough product (whether due to a minimal labor force able to create/provide the product, or through low inventory), people will pay more to procure it. As the Associated Press reports, global supply chain issues and rebounding economies the world over both played major roles in recently rising prices.
The Impacts Inflation Can Have
The most obvious effect inflation has on a region, its people and businesses is the fact that money doesn’t go as far as it once did. Not only are prices higher for the goods and services upon which you rely, but interest rates might be impacted, as well. Depending on those rates, the amount stored within your savings account might not bring what it once did in interest. Inflation can also lead to turmoil on the stock exchange side of things, potentially decreasing the value your investments. As CNBC notes, however, because investments are a long-term financial approach, a brief decrease isn’t necessarily cause for worry. (The U.S. Bureau of Labor Statistics’ CPI Inflation Calculator is an easy, interactive way to gauge how costs have changed with time.)
How Business Owners Can Stand Prepared
A bit of forethought is the best defense against most any obstacle out there. (And that includes inflation.) For business owners, that can mean keeping careful spreadsheets of product and material orders, their associated prices and even what was used/sold within a given timeframe. Understanding what you use, what it cost — and what you can afford to spend, should prices rise — can help keep you on solid footing for the road ahead. If needed, you might adjust your own pricing, passing some of your own increases on to those who purchase your goods or services. Having a targeted financial approach also makes a world of difference. From making sure your funds are contained within accounts that deliver the highest possible return, to maintaining easy access to your money when needed and even diversifying your investments, you can poise your business for success.
Inflation can feel overwhelming when it makes itself known within headlines, but a well-planned approach to your business — and a level head when prices do rise — can help. If you have questions about any of the above, or if you’re interested in making sure your business’ financial approach is where it should be to meet your goals, feel free to contact Central Bank. Our team is here to help!