Inflation Is Coming

By Frank Kenna

I was at a meeting the other day of 6 business owners and was struck that 5 of them mentioned the effect that inflation is starting to have on their businesses.  Although all anecdotal, it was the first I’ve heard of domestic inflation in the past several years.

Many, including me, think that the recent eruptions in the Middle East were caused by food and commodity inflation.  Then this morning’s The Wall Street Journal ran a front page story titled, “Inflation Worries Spread,” and another about Sara Lee’s rising costs.  Yesterday they reported that shares of Sysco fell 6% after they said profit was hurt by surging food-price inflation.

From my perspective, there’s little doubt: inflation is coming.  In fact, it may already be here but just not showing up as companies like Sara Lee and Sysco try to keep a lid on raising prices as long as possible.  But they can’t do it forever.

What does this mean for managers?  First, we all have to re-adjust our thinking to an inflationary mentality.  Here are some things we should start thinking about:

· Buying larger supplies of commodities to lock in lower current prices.
· Lock in long-term purchasing agreements with suppliers.
· Readjust budgets to account for annual wage adjustments and rising prices in cost-sensitive areas.
· Prepare for demands for pay hikes and wage increases.
· Set expectations with employees through whatever workplace communications tools you use.
· Start signaling to your customers that higher prices are ahead.  Lock in additional business at today’s prices.
· Lengthen loan agreements with lenders at today’s low rates.

With a little preparation now, we can benefit from inflation in some areas and blunt the negative effects in others.

Sharon Toelle
February 9, 2011

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