Hidden Danger of Inflation

Inflation is one of those things that seem to sneak up on us. One day we are not aware of it, and then all of a sudden we go, “This price seems kind of high.” The surprise is because we don’t normally think about what we have been paying for things, but rather ignore prices until they suddenly seem out of line. This is the hidden danger of inflation in action. Oh sure, we notice the sudden increase in the price of gasoline, but that is because it is so sudden.

It Slowly Creeps Up On Us

Often we get so busy in our day-to-day activities and putting out fires that we lose sight of the slow creep of inflation. I mentioned above that we notice a sudden increase in the price of gasoline, but what about the slow increase in prices of other items. If you are a manufacturer, are your raw materials gradually becoming more expensive? It is easy to ignore small increases that over time become big increases. On a personal level, do you remember what you were paying for natural gas to heat your home last year? Probably not, but here is another way inflation creeps up on us; that is a time lag. Just as we often fail to notice small increases that amount to a lot over time, we also fail to notice a significant change in the cost of something that we have not used in a while.

Sometimes It’s Hidden

Although not as common for businesses to experience as consumers, there is another trick that is used to hide inflation. A prime example is found in grocery stores. Manufacturers often know that consumers will resist price increases, so they use another tactic that is much more subtle; they reduce the container size and leave the price unchanged from the previous larger size. Sometimes we experience a double whammy as they may add a small and seemingly insignificant increase in the price in addition to the reduced package size. Both of these are attempts to hide inflation and reduce our resistance to change.

A Protection

It is a good idea to periodically review current prices you are paying for business services and products with prices from a few months ago. You might be surprised to find that you are paying significantly more. This is an opportunity to talk with suppliers and try to get them to negotiate their prices. If necessary, you may need to find alternative suppliers. Then again, you may find it necessary to pass on some of your increased costs to your own customers. But remember, your customers are likely to notice a sudden, large increase. That is why it is critical to stay on top of what you are paying so that you can make gradual pricing changes that will be far less likely to produce strong customer reactions.

Do you have a way to keep track of what you are paying for things? Are you careful about how you pass on higher costs to avoid customer problems? This is essential if you are to minimize the impact of the hidden danger of inflation.

If you want to know more, contact AimCFO – Contact

As always, your comments are welcomed.

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