Should We Be Worried About a Potential Incoming Inflation Tsunami?

As if a 2-year pandemic wasn’t enough, inflation has been rising around the world – and the U.S is seeing one of the biggest increases. Anyone who’s been to the store recently can see that consumer prices have spiked, and according to the Consumer Price Index, the annual rate of inflation in the United States reached 6.2% in October 2021, the highest in more than three decades (CPI). Other inflation indicators have also increased significantly in recent months, though not to the same amount as the CPI.

Other countries have also hit record high inflation numbers recently. 

According to Peter Schiff, an American stock broker, financial commentator, and radio personality, things may be even more dire than they first appear. When speaking to Fox Business along with Chief Investment Officer and Portfolio Manager of Solutions Funds Group Larry Shover, he had the following to say:

“If we still measured inflation the way we did 40 years ago, it would be 15%, not 7.5%. And the rate hikes they’ve proposed are completely inadequate. In fact, the Fed is intending to pursue an accommodative monetary policy. Even if they raise interest rates to 1 or 2%, that is highly accommodative. That’s the same type of interest rates they had when inflation was below 2%. You’ve got inflation at 7.5%, even the way they measure it – and rising. The only way to put out this fire is to have positive real interest rates. The Fed needs to get above the inflation rate. We’re not even going to get close. So, they’re going to continue to pour gasoline on the fire. And so, the entire time the Fed is inching up rates, inflation is actually going to be moving higher. Inflation is going to be worse in 2022 than it was in 2021, and real interest rates are going to continue to fall even as the Fed raises nominal rates.”

Jim Rogers doesn’t have a brighter outlook. 

 

“In my view, inflation will come, interest rates will go higher, stocks will get extremely overpriced because of enthusiasm and that will lead to a big bear market, the worst in my lifetime. We had a big bear market in 2008-2009 because of too much debt. Debt is now much higher all over the world. Everywhere debt has gotten higher than conceivable and so the next bear market has to be a very, very bear market. I am not trying to scare you or anything I am just telling you a few facts. The debt situation is much worse than 2008-2009.”

In 2008, he called it “the inflation holocaust”. In 2022, it’s being called “the inflation tsunami”.

Can Businesses Weather the Storm?

Companies all throughout the world, particularly in the United States, are suffering the effects of inflation. Many things are becoming more expensive, while wages are rising due to a tight labor market. Although looking for cost-cutting options is generally a good idea, it skirts the issue of what is unusual about a high-inflation economy.

Nobody knows how long the current inflation wave will last, but a poll of economists conducted in the summer of 2021 suggested that it may last for years. More recently, the Federal Reserve of the United States suggested that the current wave of inflation may not be as “transitory” as previously thought.

Businesses have limited control over inflation, but it adds cost pressure to their operations that they must manage. When faced with issues that threaten profitability, the natural reaction is to choose one of three unappealing options. Irritate customers by raising prices, irritate investors by decreasing margins, or irritate almost everyone by cutting corners to save money. When faced with this trilemma, most businesses raise their rates and then look for creative ways to deal with the ensuing drama.

What they fail to see is that those three possibilities are tactical relics from a bygone era. Management teams lacked the technology, data, and, in many cases, the idea to do anything bolder or more strategic in the 1970s, when major economies were seized by “stagflation.” When inflation struck during the Great Recession of 2008-09, companies were caught in the same trilemma as before.

Profitability was listed as the top worry by 74% of CFOs in a recent Gartner survey, the highest of any inflation impact. In many cases, the instinctive cost-cutting approach will be the best way to reduce inflationary margin pressures. Attempting to spend your way out of inflation will not be successful.

Digital projects, on the other hand, should be viewed through a different perspective. Digital projects that are well-planned and implemented must have a long-term deflationary effect on corporate costs and, as a result, product or service prices. This is what we term digital deflation: investing in technology to reduce the cost of doing business in the long run.

Outsourcing as a Means of Overcoming Inflation

Collaborating with business process outsourcing (BPO) firms helps to increase productivity, reduce costs, and, ultimately, successfully navigate inflation. Companies can lower expenses throughout their entire enterprises with the use of new technologies and BPO services. These technologies also assist in addressing current labor shortages by decreasing manual chores, allowing your employees to accomplish more in less time.