Be aware.
The dormant forces of inflation are stirring. Consequences will be strategic, structural and deep-reaching.
Globally, the signs are indisputable. Annual inflation in USA increased by 5% in the period to May, 2021. That is the fastest rate since 1982.
In recent times the European Central Bank has revised and scaled up its projections for inflation. (Around 3.5%).
Cost structures for living, business and supply chains per se will progressively and sustainably increase. Incomes for the populace at large and for many small businesses in particular, will remain relatively static for the immediate foreseeable future.
Therefore, the real cost-of-living will become apparent and will be reflected in confidence levels, expenditure patterns and ultimately in house prices.
BEYOND GOVERNMENT
The lead in increases for mortgages, loans and credit will emanate from the trading banks.
Those trends are already evolving and are being implemented. Moreover, the trend-line is not one way. Some savings and investment rates have been trimmed. More refinements are expected.
Both the Federal Government and the Reserve Bank have indicated they will not be prime movers or catalysts. However, the latter will readily accept the changes and their consequences as forces for good.
GLOBAL AND UNIVERSAL
Global shipping freight rates are increasing. Container availability is declining. Insurance premiums are on the incline and coverage is being selectively reigned in.
Compounding those challenges, an increasing number of global suppliers are now invoking minimum container-full orders, longer production lead times and greater time allowances for transport. Each is, and will put, pressure on margins, profits and prices.
Increments in prices are evolving in wholesale, distribution and all retail.
Anecdotal evidence suggests that consumer awareness of, and sensitivity to price increasing is broadening. There are few signs of widespread pushback – at this time.
CONSEQUENCES
A strong measure of tolerance exists among consumers and corporate clients. That should not be confused with understanding. At some point in time, possibly in the near future, there will be an awakening, a sense of deprivation and calls for fairness and equity.
At the forefront will be mortgage stress, which will be highlighted and reinforced by increases in periodic repayments. Fixed term interest rates will be a short-term cushion or buffer. However, those terms have been progressively curtailed, particularly since the onset of the coronavirus pandemic.
Consumers who live mortgage-free will be contaminated by the infectious nature of attitudes, perceptions and subjective value of judgments. It is difficult for lenders, all lenders, to argue for, substantiate and justify increases during a period of inflation, when income levels are static.
SCENARIO ANALYSIS
The vagaries of the current economy, make long-term and intermediate-term planning complex, difficult and in many instances misguided and ineffective.
Unknown unknowns and known unknowns tend to dismantle facts into suppositions and guesses.
Structured, disciplined and documented strategic plans have been replaced, in the main, by contingency, in its many forms.
Malleability and responsiveness have become valued and virtuous characteristics.
Thinning ranks, extended working hours and complex (often conflicting) demands make the scheduling for and conduct of group meetings difficult, if not out of reach.
However, for the committed, those deliberations are energising, confidence building and directional. Margins-of-error and miss-steps are accepted as givens.
Accepting, learning from, and moving on from, errors are essential features of life and commerce in these times.
Believe me, facilitating those events are educational, reassuring and, often, life changing.
Timely action now, neutralises, if not deflates the inflated. Taking the wind out of inflation ensures it does not become an ongoing renewable energy force.
Barry Urquhart
Marketplace Analyst
Marketing Focus
M: 041 983 5555
E: Urquhart@marketingfocus.net.au