How Businesses Should Prepare For Inflation
It is highly probable that the country is headed for a period of high inflation. It is difficult for an economic environment to stabilize when there is a rise of 6 or 7 inflation rates a year. No one is certain as to when this scenario might occur. However, it is very possible that this will happen because of two main reasons. The first one is that there is a continuous build-up of inflationary pressures. The government does not have the capacity to contain this for long periods of time. Second, it is possible that government officials desire to contain inflation, as inflation allows people to pay debt with less valuable dollars. There is already evidence that there is an increase in the prices of food and different commodities. Furthermore, there will be a peak in the consumer price index. This will result in panic for the people.
There are different steps on how businesses should prepare for inflation. The first is to acquire hard assets. These assets will maintain their value as there is a decline in the dollar’s purchasing power. It is not really a smart move to apply for a loan for unnecessary purchases. However, if a business has a good use for the loan and obtains a fixed rate, then the business should apply for it. Businesses will be paying using cheaper collars. It is also a good idea to extend contracts and leases with suppliers for an extra 10 years and maintain current prices. If a business is into real estate, it is better to own than to rent. On the other hand, if a business does rent, the company can obtain an extension on its lease. As of the current period, the landlord will think that he is negotiating a fair price and that he has a faithful tenant who pays on time. It is possible that the landlord will have a problem with committing to rent if there is an inflationary environment.
The last resort would be to raise prices. This could be 1 or 2 percent a year. Businesses do not have to raise prices abruptly when inflation spikes. If the competitors are pressured to do that, the company will have a great opportunity to increase market share at the other business expense.
Inflation is an event that is controlled by many factors. Businesses must prepare for it by doing the aforementioned steps.
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