The new year has brought more of the same when it comes to inflation. Here is a quick update on the state of inflation and what’s to come.
Consumer Price Index
The December Consumer Price Index hit a 40-year high of 7%. This is not good inflation rising over time.
Interest Rate Increases Coming
The United States Federal Reserve has indicated that rate increases will likely start in March 2022 to combat the strong inflation. They have indicated that they will likely raise interest rates three times in 2022, but JP Morgan CEO Jamie Dimon believes they could raise rates 6 to 7 times. How high will interest rates go? Hard to say, but the days of cheap lending are ending.
Labor Shortage
There are many reasons for the current labor shortage: illness, child care, early retirement, less immigration to name a few. The bottom line is a roaring economy due to strong economic stimulus in 2020 and 2021 resulting in lots of jobs and not enough workers.
Small Business Impact
Every business knows the impact. Here are some things to consider if you are a small business:
- Higher inventory costs – everyone knows this already, but don’t expect it to end any time soon
- Higher labor costs – with the labor supply out of balance, higher will be difficult and more expensive
- Higher lending costs – lock in your loans and lines of credit now because capital will only get more expensive
The big question is how quickly and how much can small businesses raise prices? This will be necessary more than ever before to maintain financial profitability.