No matter what industry you are in, your business will be feeling the effects of rising inflation rates and the forecast shows that it is set to continue to increase well into 2023.
The aftermath of the COVID-19 pandemic, Brexit and the current war in Ukraine has caused supply shortages worldwide. Pairing this with strong consumer demand, we have seen a global increase in inflation rates.
There are two main factors that primarily drive inflation.
Demand-Supply Rule
This means there is excessive demand but a lower supply of goods. Therefore, businesses are becoming unable to meet consumer markets, leading to an increase in prices of goods.
Cost-Push Rule
In the cost-push rule the price of production of goods increases, which leads to a decrease in supply. The demand for these goods remains unchanged so businesses are forced to increase prices.
In the UK, there are two main ways to measure the inflation rate. The consumer price index (CPI) is one of the primary measures and is defined as the overall change in consumer prices based on a representative pool of goods and services. The other is CPIH, which is the consumer price index including housing costs.
The Office of National Statistics recently published their latest consumer price index report for July 2022, and it was found that:
- CPI has risen by 10.1% in the last 12 months up to July 2022 and up from 9.4% in June 2022.
- CPIH showed a rise of 8.8% in the last 12 months up to July 2022.
- Over the course of the month, CPIH rose by 0.6% in July 2022 compared to 0% in July 2021
How your business can deal with the impacts of inflation
Despite these alarming rises, there are things that your business can do to help offset the impact of growing inflation rates. Below are some tips based on an article by one of our insurer partners Markel, on how your business can deal with inflation.
1. Understanding the type of inflation exposure to your business
The reported inflation figures are collective of the rates of price changes over many different product and service categories. This means that some markets have higher inflation rates than others. For example, The Office of National Statistics reported that in July 2022 the largest contribution to the annual CPIH rate came from electricity, gas, and other fuels within household services, along with motor fuels. On the other hand, second hand cars showed a miniscule percentage change in CPIH. This was in account of the increase in motor fuel prices, which in turn reduced consumer demand of second hand cars.
This shows that the impacts of the rise in inflation rates could be moderate or insignificant to certain industries. Having a thorough understanding of which industries are the most impacted can help you pinpoint where price changes will be most substantial.
2. Understanding the impact of supply chains
Understanding your entire value chain and how it is affected is one of the most crucial steps in mitigating the impacts of inflation. This means not only learning about the impacts on your supplier, but learning about the impacts on your supplier’s supplier etc. From this, you can assess the risk of disruption to your supply, develop alternative supply routes or simplify and substitute certain elements of your overall supply chain. You could also undertake an inventory examination. For example, could you partner with suppliers to get discounts on bulk purchases?
3. Cut out waste
Preventing overspending in either price or volume will dramatically mitigate the effects of inflation on your business. It is essential to fully understand the ratio between price paid for goods vs value achieved. By considering the real price drivers to the business and how they are performing, non-essential goods can be pinpointed and reduced or cut out of the supply chain completely. Other measures can be taken, such as finding ways to reduce everyday costs to the business. For example, you could audit energy costs to see if there’s a better option available.
4. Having a strong relationship between Company, Broker and Insurance Carrier
Unemployment rates have improved from the all-time high during the peak of COVID-19, but according to Beazley, analysts are predicting mass redundancies in the future. This means that many workers may look to recover lost wages by whatever means they can. This could even include lawsuits against their previous employer. That’s why having the correct insurance and a strong relationship with a knowledgeable broker is vital during this period, where future unemployment rates are uncertain.
Barnes Commercial Insurance Broker can help your business mitigate risk. We can deliver comprehensive insurance products from A rated insurers. As an entirely independent broker we enjoy complete impartiality so you can rest assured that the solution we propose will be the right one for you.
Talk to an experienced adviser about your insurance needs on 01480 272727 or send an email to enquires@barnesinsurancebroker.co.uk
