Many consumers are currently questioning whether inflation has finally peaked and is starting to slow down. Inflation has been at an all-time high compared to the last four decades. We have seen increased prices for vehicles, rent, and groceries.
In July, we did see a small hint of relief as prices didn’t budge after 25 straight months of increases. Currently, gas prices have fallen, so many consumers hope that inflation is going to further slow down.
Inflation previously seemed to slow down before for it only reaccelerate in later months. With this in mind, it is hard to know for certain if prices will continue to decline. Even if prices are to decrease, we likely still have a long way to go before inflation will get anywhere close again to the 2% annual pace that the Federal Reserve has targeted and that American citizens were used to.
Where is inflation headed you may ask? Unfortunately, it is a hard question to answer because there are multiple signs pointing in both directions. Although we are currently seeing an ongoing decline in gas prices, there is still a rise in grocery costs.
We are also noticing that many supply chain issues are loosening and shipping costs are decreasing. This means that the cost of cars, furniture, and other goods could be reduced. We are already seeing a decline in the price of appliances.
One sign that has economists questioning if inflation will remain high is that companies are continuing to hire workers at a rapid pace and are also willing to offer higher pay in order to fill positions. Another sign could be possibly linked to productivity and wage increases that we are seeing among businesses.
Typically, companies would transfer high labor costs to their customers by increasing prices, however, it has been found that some businesses are becoming more productive through streamlining operations and using more technology.
Although businesses are negatively affected by high labor costs, it is possible that they are able to make up for these costs through greater efficiency instead of increasing their prices. However, for the first half of 2022, this wasn’t the case. Productivity often decreased while wages increased, some even growing at double-digit levels. These pay increases have been passed on to consumers, which has helped fuel high inflation.
Although we can’t currently predict what path inflation will take for the rest of the year, it is important to be prepared for continued increases. It is crucial to have emergency funds available as well as a game plan in case business is negatively impacted by the current season we are facing.
If you need assistance analyzing your financial position and what could be done to help prevent issues in your company, reach out to us today to see about our profitability advisory services!
