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Double digit inflation – are you ready?

We are not there yet, and no one can say for sure that we will, but it took central banks less than a year to change their view of high inflation from “transient” to “here to stay”, and this was before the war in Ukraine.

In the current economic climate, a double-digit inflation should not come as a surprise. It is definitely prudent to prepare for it. Even if it stays below 10%, the transition to an inflationary environment warrants some thought, if not action.

No single post can cover all the angles of preparing for such an environment. Businesses are too diverse for a comprehensive list of business elements to be compiled, but there are some categories that can be relevant to all:

1. Finance: high inflation means higher interest rates so now is the time to refinance loans and mortgages that are nearing their fix rate terms, or, if needed to secure new finance

2. Other long-term contracts: if you have the option to sign long term contracts for anything that is material to your business, even at prices that are a bit higher than today’s, do it. Someone smart once said that to hedge is not to gamble. Not to hedge is a gamble.

3. Pricing: even if you were reluctant to increase your selling prices, now is the time to rethink. Review your pricing to make sure that every product that was profitable last year is still profitable and if not, increase prices. With prices going up left, right and centre you might be surprised at how easily the market will accept it.

4. Critical supplies: if your business is reliant on critical supplies, this is a good time to look for alternatives. Unless superior quality is a core value, if the only alternatives are of lower quality you may want to consider starting to offer Premium line, using your traditional materials, and a Standard line using cheaper ones. This will allow you to increase the Premium line prices while offering a more affordable alternative.

5. Salaries: unhappy employees are not good for you. Everyone finds that their grocery and utility bills are higher so you may want to voluntarily increase salaries to help your employees worry less about paying their bills.

6. Efficiency: something you should always have on your dashboard but definitely when the going gets tough. By increasing efficiencies you may be able to reduce the number of employees, your utility bills, supplies costs, etc. and this might reduce your need to increase prices.

All of the above are things that need to be reviewed on an ongoing basis in any business regardless of high inflation. The prevailing economic climate makes them much more acute.

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