Inflation hitting small businesses hard

The CPI (consumer price index) figure, a measure of inflation, was higher than expected for this quarter at 5.1% and this is going to impact businesses and individuals in some way or another. 

Previously, Australia’s inflation rate was lagging behind other countries such as those in Europe and the US, however the scale of the recent increase indicates that this is changing. 

The RBA recently increased its cash rate target to 0.35% as a response and we can expect further inflation pressures to cause uncertainty for businesses in the coming months. 

In particular, small businesses are hit hard by inflation, primarily due to the flow on effect on wages and the cost of capital. Although we are going down the same CPI path as other developed countries, it doesn’t make the news any less difficult to take. 

Tony Greco, the general manager technical policy at IPA acknowledges that ‘the cost of capital is a business cost, so businesses need to factor into their price structures the impact of future rate hikes’.

Highly leveraged operations are going to be more exposed than those that do not have significant levels of borrowing, so the impact and response across the economy is not going to be a uniform one. This is cause for concern for many businesses that have seen it tough over the past few years and have yet to recover, yet would have otherwise had the ability to do so.

Fuel price is yet another great unknown that companies are needing to adjust their forward estimates to compensate for. Temporary excise cuts cannot mitigate the issue for long and there is a large question mark over the likelihood of peace in Ukraine in the foreseeable future. 

However, perhaps the biggest factor for businesses to consider is the need for an increase in wages in response to ongoing inflationary pressures. 

By considering a 5% wage increase and understanding the impacts that this would have in addition to other additional expenses, businesses are able to determine how they are able to continue operations over time. 

Needless to say, many small businesses are going to find it difficult and impacted negatively when CPI increases and the value of the dollar goes down. 

We are aware of the need for forward thinking and proactive approaches at this time and are eager to support our clients in ensuring that they are securing their businesses in these uncertain times. 

Contact Glance Consultants today to get help or advice for your small business on 03 9885 9793

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