Inflation, it might be argued, is a fact of life.
If you’re not experiencing it, you’re likely anticipating it.
Reuters reported on Wednesday (Jan. 13) that, according to St. Louis Federal Reserve President James Bullard, inflation is in the wings, as the money supply has “exploded” and inflation will be on the rise.
“Labor markets have improved dramatically, but still have a long way to go,” he said, according to the newswire, adding that “you still need unemployment to drop, jobs to come back … certain sectors have really been hard-hit, and for them to come back, we are going to have to get this vaccine rolled out.” For the economy as a whole, he said, “it’s possible [to] get a boom… but let’s wait and see if that actually happens.”
An upswing generally portends inflation. The Fed itself has kept rates at or near historic lows for quite some time; and for now, inflation is well below the 2 percent target that has traditionally been cited by the central bank. In recent months, the Fed has said it will adopt a policy known as “flexible average inflation targeting” – where, generally speaking, the Fed will seek inflation above 2 percent to compensate for past periods when it was below 2 percent.
The latest reading of consumer prices shows that, per the Labor Department, consumers’ prices were up 40 basis points in December, year on year – much of that rise buoyed by gasoline prices. As reported by CNBC on Wednesday (Jan. 13), the CPI was up 1.4 percent in 2020, the smallest gain in five years, down from a 2.3 percent rise in 2019 and bringing the 10-year average to 1.7 percent.
Getting Ready for Inflation
Inflation is not necessarily a bad thing. It’s a sign of a growing economy. It boosts demand, at least over the shorter term. If consumers think inflation is on the horizon, they tend to buy sooner rather than later to lock in lower prices. Generally speaking, businesses that sense more demand on the horizon will ramp up operations and will, conceivably, ramp up staff to boost output to meet that demand.
But it’s all a balancing act. Companies that anticipate higher input prices – including wages – will boost prices in an attempt to pass higher costs on to consumers. The question is how much of an increase the consumer is willing, or able, to bear before demand wanes.
For the small businesses that dot Main Street – as profiled over the last several months – the outlook is not as dire as it once was in terms of the pandemic. Survival, by and large, was once in doubt for these smaller firms that power the U.S. economy, and it’s no stretch to say that the early months of the coronavirus were crippling. But as Visa’s recent Back to Business Study — 2021 Outlook showed, the digital transformation that is afoot may help these smaller firms grapple with the inflation balancing act. For a sense of how far we have come, PYMNTS found in June that fewer than half of SMBs said they would survive into summer 2022, but that percentage had risen to 54 percent by November. Flexibility was – and will be – key to surviving and thriving.
As illustrated in an interview with Karen Webster, Kevin Phalen, Visa’s global head of business solutions, noted that pivoting to digital channels has helped SMBs find new customers. Drilling down into the data: 82 percent of firms surveyed said they had embraced new forms of digital technology to meet their consumers’ emerging needs. About 44 percent are embracing contactless or mobile payments, 36 percent are integrating buy online pick up in-store (BOPIS) and 31 percent are upgrading digital backend payment operations.
Part of that optimism can be traced to the resilience of the multi-channel model, where PYMNTS has found that more than 60 percent of Main Street firms have at least three channels operating to drive sales: online, at physical stores and via the phone. PYMNTS found that 71 percent use online channels, 68 percent use physical stores, 66 percent use the telephone and 59 percent use marketplaces.
The ability to pivot quickly may be just the tonic that retailers, restaurants and other firms need, as they optimize staffing levels on the other side of the pandemic to meet consumers’ demands in-store, on-site or online.
Reducing and streamlining some operational costs means prices can increase a bit, but not so much so that customers are nonplussed. Those costs might be tied to having more staffers on hand for a dining shift than might be actually needed – without the insight from modernized backend systems, which helps deploy staff to delivery channels (and additional revenue streams). The inflation balancing act may be made a bit easier, then, with digital-first initiatives.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More