Recently, the Office for National Statistics released the latest inflation figures, which
revealed that the figure has risen by 9% in the 12 months leading up to April 2022.
Alarmingly, this is the largest spike since 1982.
The question is though, what exactly is inflation? And how could it affect my small business?
Read on to find out.
What Is Inflation?
Inflation is defined as an increase in the price of goods and services and a fall in the
purchasing value of money. Inflation is the opposite of deflation, which happens when the
purchasing value of money increases whilst prices decline. The rise in prices that occurs in
inflation essentially means that money buys less than it has done previously.
It is measured using an index, most commonly the Consumer Prices Index (CPI) or the
Wholesale Price Index (WPI). It often encourages spending, because consumers prefer to
buy goods now rather than waiting if prices are expected to rise.
What Is The Current Inflation Rate And Why Is It Rising?
The current inflation rate is 9%. You can check the current inflation rate using the Bank of
England’s online inflation calculator. It is updated monthly and is based on the CPI, which
tracks the prices of everyday goods. The rocketing cost of electricity, gas and fuel is a big
contribution to the increasing rate.
The Bank of England predicts that the rate will continue to rise this year, particularly due to
overseas lockdowns affecting imports and the war in Ukraine. They are hoping that next
year it will begin to decrease. There is a target rate of inflation which is 2%, and the Bank of
England believes this will help people to plan for the future and keep inflation stable.
How Does Inflation Affect Small Businesses?
Unfortunately, unless income remains at the same rate, high rates of inflation means that
people will be worse off. Therefore, this leads to reduced spending and a fall in sales. As
inflation causes consumer prices to rise, it will also raise your business expenses.
Inflation can also cause supply chain issues. There may be a lower supply of materials, and
wait times could likely be increased. It is important to be aware of the effects of inflation on
your small business, so you can prepare a solution to protect your business and profits.
How Can I Tackle Inflation?
Raise your prices – an important way of protecting your revenue is to adjust your prices in accordance with the inflation trends. Try using a pricing strategy that helps you to earn sales.
Evaluate your costs – review what your business is spending and aim to reduce these amounts where possible. If you can reduce your spending, this will help you out and you can have more peace of mind regarding your business’ financial health.
Be prepared for inflation – if you expect inflation, you will find it a lot less daunting to deal with. Make sure you keep an eye out on the rate of inflation and the economy as this will help you to see it coming.
Thanks For Reading
Thank you for reading our article about inflation and we hope it has improved your
understanding of inflation and how you can protect your small business.
If you would like some help with managing and recording your finances, consider taking a
look at the services we offer. Book a free 30-minute consultation call with us today where
you can find out the many ways we can assist you.