If you haven’t raised prices on your goods or services, now is the time to do so (even if you don’t need to). The Fed announced yesterday that annualized inflation rate is at a forty-year high of 7.9%.
Whether you are producing goods or services, you feel the impact of a tight labor market. According to the Labor Department’s recent Job Openings and Labor Turnover Summary, 47.8 million people quit their jobs last year, and many opted for better work. We are seeing clients’ total employment cost increase by 10-15% premium on historical labor rates. This created a strained labor market, making it more challenging to attract and retain quality talent across all sectors.
Geopolitical unrest is yet another factor impacting prices and the economy. The conflict in Ukraine, and Russian sanctions, are further increasing uncertainty and availability of commodities such as oil, grains, and rare earth minerals, impacting the commodities markets. Commodities futures pricing is for the future delivery of these commodities; therefore, we consume today’s products at last year’s pricing. This is called “inflation lag,” the brunt force of which will be felt 6 to 12 months from now as these commodities become finished goods.
Supply chain issues from COVID-19 remain another threat to the economy and businesses. Supply chain challenges have caused many of our clients to miss their revenue targets by 15%-20%.
Yesterday, to begin tampering with inflation, the Fed raised interest rates by .25% and announced the intent to make six additional rate increases with a targeted 2% Fed Funds Rate by year-end.
If you haven’t already, now is the time to raise prices, even if any of the factors mentioned above does not impact you. We recommend increasing pricing today to stay ahead of the curve, thus preserving margins and working capital. At the end of the day, it impacts cash flow and overall corporate valuations. While they don’t like it, they will understand, as they also face inflationary pressures.