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Guest Blog- Managing Inflation: Challenges for Businesses and Opportunities Ahead

Last month, the U.S. Bureau of Labor Statistics published its March 2024 Consumer Price Index (CPI) report, with its Producer Price Index (PPI) following a day later.

While the CPI reveals more about the costs of everyday goods and services for consumers and helps identify changes to the cost of living, the PPI report instead measures growth and the selling prices of products purchased by producers. Both are key indicators of what’s happening with regards to inflation.

Inflation is a negative for the economy as a whole. As prices rise, people tend to buy less, leading to decreased demand for goods, including chemicals.

By better understanding the prevailing economic conditions, businesses can make far more informed strategic decisions and know when it’s better to invest or to batten down the hatches. For some time now, chemical distributors have been bearing the brunt of higher costs, shrinking margins, and significant supply chain disruption.

The latest published figures confirm what we’ve all been feeling for some time – that prices are still rising, and market conditions are tough. The situation is unlikely to change too much in the foreseeable future.

Inflation in the U.S. is currently around 3.5-4 percent, and although the rate of price growth has moderated, prices continue to climb.  Shipping costs are on the rise, alongside increasing fuel and petroleum prices, while electricity demand consistently exceeds supply. Last month, there was five percent inflation on electricity – in just one month! Such rapid increases are sure to hurt your bottom line.

We experience inflation when the amount of money in the economy is growing faster than productivity. As regulations pile up, production costs rise, causing a decrease in output, which in turn leads to inflation. Even worse, from an economist’s perspective, our forecasts show that we're in a period of stagflation— stagnant economic growth— in the United States, so huge economic growth is not expected.

Key demand sectors remain weak, with recent figures showing that automobile sales have been in decline and construction is suffering – in part due to the high interest rates as well as weakening demand. In addition, the ongoing labor shortage means companies are still having difficulty recruiting appropriately skilled talent and price rises are outstripping wages.

I predict that it's going to be a difficult year for all of us. We’re facing a growing mountain of regulations and bottlenecks in the transportation system from issues with the Suez Canal, Yemen, and the Red Sea, not to mention the recent events in Baltimore. On top of that, there is nothing in the data right now that suggests the economy is going to better any time soon. In fact, it's probably going to get worse.

However, this does present opportunities, particularly for companies with good credit. With electricity prices rising and natural gas prices almost at all-time lows, a business looking to switch from electricity to natural gas could prove to be a productive investment.

If you’re looking to purchase capital equipment right now, it’s probably a pretty good time. However, if your investments require a lot of services, it’s going to be very expensive, and it will be difficult to make any margin.

In times of economic uncertainty, strategic investments and cost-saving measures can make all the difference.

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