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 itsprojections for inflation. (Around 3.5%).
Cost structures for living, business and supply chains per se willprogressively and sustainably increase. Incomes for the populace at large andfor many small businesses in particular, will remain relatively static for theimmediate foreseeable future.
Therefore, the real cost-of-living will become apparent and will be reflectedin confidence levels, expenditure patterns and ultimately in house prices.
BEYOND GOVERNMENT
The lead in increases for mortgages, loans and credit will emanate from thetrading banks.
Those trends are already evolving and are being implemented. Moreover, thetrend-line is not one way. Some savings and investment rates have beentrimmed. More refinements are expected.
Both the Federal Government and the Reserve Bank have indicated they will notbe prime movers or catalysts. However, the latter will readily accept thechanges and their consequences as forces for good.
GLOBAL AND UNIVERSAL
Global shipping freight rates are increasing. Container availability isdeclining. Insurance premiums are on the incline and coverage is beingselectively reigned in.
Compounding those challenges, an increasing number of global suppliers are nowinvoking minimum container-full orders, longer production lead times andgreater time allowances for transport. Each is, and will put, pressure onmargins, profits and prices.
Increments in prices are evolving in wholesale, distribution and all retail.
Anecdotal evidence suggests that consumer awareness of, and sensitivity toprice 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 ofdeprivation and calls for fairness and equity.
At the forefront will be mortgage stress , which will be highlighted andreinforced by increases in periodic repayments. Fixed term interest rates willbe a short-term cushion or buffer. However, those terms have beenprogressively curtailed, particularly since the onset of the coronaviruspandemic.
Consumers who live mortgage-free will be contaminated by the infectious natureof attitudes, perceptions and subjective value of judgments. It is difficultfor lenders, all lenders, to argue for, substantiate and justify increasesduring a period of inflation, when income levels are static.
SCENARIO ANALYSIS
The vagaries of the current economy, make long-term and intermediate-termplanning complex, difficult and in many instances misguided and ineffective.
Unknown unknowns and known unknowns tend to dismantle facts intosuppositions and guesses.
Structured, disciplined and documented strategic plans have been replaced, inthe main, by contingency, in its many forms.
Malleability and responsiveness have become valued and virtuouscharacteristics.
Thinning ranks, extended working hours and complex (often conflicting) demandsmake the scheduling for and conduct of group meetings difficult, if not out ofreach.
However, for the committed, those deliberations are energising, confidencebuilding and directional. Margins-of-error and miss-steps are accepted asgivens.
Accepting, learning from, and moving on from, errors are essential features oflife 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 windout of inflation ensures it does not become an ongoing renewable energy force.
Barry Urquhart
Marketplace Analyst
Marketing Focus
M: 041 983 5555
E: [email protected]
W: www.marketingfocus.net.au
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