The Cost of Inflation
Inflation can be a sensitive topic, especially when the value of a dollar is rapidly changing. The economic status of the United States ebbs and flows, but studying trends can help us stay on top of the situation at hand. So, what exactly is going on with inflation right now, and what kind of shape will the branding, print, promo, and apparel industries be in during 2023?
According to the U.S Bureau of Labor Statistics (“BLS”), the average real hourly wage has gone down by 3.0% when comparing September 2022 to September 2021. Pay has decreased, therefore the buying power of the consumer has decreased, too. On top of that, BLS also reported in September that consumer prices have risen 8.2% in the last year. The food index alone has risen by 11.2% in the past 12-month period. Additionally, in the last year, commodities prices (less food and energy) have gone up by 6.6%. When customers can’t make the same size purchases they would have made a year ago, companies take a hit.
The BLS also tells us that $1.00 in September of 2021 has the same buying power as $1.08 only a year later! Their consumer price index provides insight into the factors of this decline in value, naming shelter, food, and medical care as the most substantial contributors.
Last week, we reached out to our Liftoff Community for their thoughts on how businesses are combating these hits and changing in the face of struggle. Patrick Burdette from Pegboard had the following comments and concerns regarding inflation:
“From our experience, I'm curious if the effects of inflation have really hit home yet. The bulk of our clients didn't shy away from purchasing decisions in 2022 because of inflation. We've certainly seen a fair share of sticker shock from our clients due to price increases stemming from inflation but in the end, the majority still chose to purchase. It feels like inflation and recession are becoming more dominant in consumer minds, and it will be interesting to see purchasing behavior over the next several months as businesses will likely grow more cautious.
I've also heard from a few suppliers that we are likely headed into a stagflation environment where we will see the cost of goods decline. Retail brands have already experienced an inventory surplus, which has translated to price cuts and layoffs. However, that has yet to make its way to promo, where we're still fighting for inventory on a daily basis, though improving. The big question is which industries/clients will be in good positions to purchase when inventory comes back and prices possibly start coming down. I think that will come down to the industries our clients are in and whether they can thrive in this economic storm.”
We also connected with Nathan Goldberg from Specialized to share his experience with inflation this year. He says,
“Inflation really threw us through a loop. I think that inflation around employee compensation and benefits hit us really hard. Some roles are up 20% or more to find reliable and smart people. We didn't increase the prices on items that we manufacture in-house nearly quickly enough, and as a result, our margins took a big hit last fiscal year. It did encourage (require) us to build better pricing tools to make sure that we can account for rapid increases in labor, raw materials, and shipping (along with other costs) to ensure our margins don't get squeezed again. We've also built tools around cash flow to ensure that we can reduce our reliance on outside credit faculties to avoid paying higher interest rates.
I do agree with Pat Burdette that we haven't seen many ‘second-guessing’ projects from our clients. While they haven't been super pleased about paying higher prices than the last order, they certainly understand why they're paying higher prices because they're seeing the same thing in their businesses and in their lives, so that has been helpful.”
Hearing these real-world experiences surrounding the recent issues with inflation helps us all better understand what’s at stake. Every business is going to handle a situation differently, whether it’s for good or bad. We learn what works best from past successes and hiccups!
In a video from October 25th with Yahoo Finance, S&P Global Ratings Chief Economist Ann Bovino claims that we should be seeing a shallow recession at the beginning of 2023. Although consumers struggle to obtain what they need now when prices are at a high, Bovino says that the upcoming recession will lead to a price drop. As inventory piles up without buyers, businesses will begin to sell at a lower price in order to quickly decrease that stockpiled quantity. Thankfully, the term “shallow recession” refers to a short period of time. So, if we follow this projection, we likely won’t be looking recession in the eyes for too long.
On the other hand, more recent news has suggested that a recession may not be in our future. Despite sounding scary, the “GDP Advance Estimate” released on October 27 by the Bureau of Economic Analysis proposes that, despite a shaky first two quarters, the third quarter of 2022 ended in growth at 2.6%. This could highly impact our economic future; the unexpected rise from July-September could mean further growth rather than the feared decline. We will get a better idea of what this may mean at the end of November when the second estimate is released.
So, what should we expect?
The United States economy has seen a rocky past few years, but the future may not be as bleak as it appears to be! However, nothing is set in stone, and trends cannot always be predicted to a “T”. Take predictions with a grain of salt. It’s best to always stay on your toes and keep an eye on trends and economic updates to ready your business for whatever may be in store.