Even though the strong inflation we’ve seen during the last year will likely flatten out, the inflation is predicted to stay at high levels for the upcoming years. It’s also a risk that it will remain until the next recession and lead to so-called stagflation. Even though today’s world leaders have broad experience in handling crises and changed world situations, few have the experience and knowledge to work actively with forecasting and decision-making in times of high inflation. This demands different methods than we are used to, and companies have different possibilities of handling the situation. For some companies, it’s easy to alter their prices at the same pace as inflation while others work with fixed prices and long term deals. Some contacts are index adjusted, while others aren’t and so on. The companies that will have to fight the hardest are probably those with price-sensitive customers and few or no possibilities to lower their cost base.
Which costs can we control?
Today we can observe increased prices everywhere, from fuel to food and electricity. Therefore, companies must master the art of modelling increased costs and expenses at the same pace as inflation. In some cases, the company's expenses will increase without having any chance to impact them. One example of this is, for example, housing costs and transportation costs. Because of this, it will be even more critical for the companies to work actively with the expenses they can affect. For most companies staff costs will be the primary cost item that they can affect, and it will be crucial to keep the increased staff costs under the pace of inflation for the products and services sold.
Tips: Read our article Opportunities (and problems) with rolling Forecast, where we talk about different Forecasting methods.
“What the wise do in the beginning, fools do in the end.”
― Warren Buffett
