Accountooze Virtual AccountantsShould you increase prices due to inflation?
Inflation. One of the most usual terms that are heard by people nowadays, though plenty of them are not well comprehended with what it really means. Although most of the citizens of the country are feeling prices going up steadily or at the gas pump, a few have some perceptions of what causes inflation, what to expect, or how to gauge the future. One particularly crucial issue is declining profit edges in the face of continued price pressure. The post-shutdown business environment carries on with some stimulating of many businesses on a variety of levels.
For instance, if only gas prices were rising, then you would not call that inflation as the certain chain could be due to some indifference in demand or supply or perhaps both in the current market. When we experience inflation, the weighted prices of all goods generally go up on average. During the pandemic, as well as afterward when inflation was expected to be transient plenty of enterprises hesitated to raise prices, choosing to accept lower profits or cutting costs wherever possible.
Now that the economists have dropped the label “transient” and excessive inflation rates appear to be with it for the foreseeable upcoming times, firms are being forced to inscribe those price pressures by rising the prices more than their average target.
Overviewing, the annual inflation rate generally in most countries averaged 3.27% between 1914 to the latest 2022. So medium inflation has been a fact of life and the natural economic state for more than a century. This makes it very necessary to differentiate between the inherent effects of inflation of any rate and those that only come in motion during the periods when inflation runs usually inflated.
What is causing the rise in prices that the average person is seeing?
The present-day projection of inflation we’re seeing is highly contentious in the public forum. While supply chain bottlenecks– for example, gasoline refineries– do have a small role to play, the aggregate of money circulating in the economy is one of the crucial causes. Easily, there are
How raising inflation can be good for the economy?
Erodes Purchasing Power
Hurts the Poor Disproportionately
Raises Interest Rates
Keeps Deflation at Bay
Lowers Debt Service Costs
Hurts Bonds, Growth Stocks
Boosts Real Estate, Energy, and Value Stocks
In conclusion, Behavioral studies have exhibited that customers keep their hope for a fair price for themselves and a fair profit for the seller. But when they suspect that the balance is not quite fair as it is supposed to be, that they are paying too much while the seller makes a high profit, they are unhappy and unlikely to pursue purchasing the same product at the same price. Although the job as a seller in an inflationary environment is, therefore, two folds:
To communicate to your present customers that your profit margin is not rising up at their expense and your product might not even be available if you don't raise prices and subsequently go out of business.
To ensure that the seller is earning a fair profit and that their customers can perceive it as fair.