Noticed things are getting more expensive?
It’s inflation. Inflation is back, and with a vengeance. In essence, disruption to supply chains along with high demand means an increase in prices with a decrease in your purchasing power.
More buys less.
But you don’t want to have less for more, so this week we’re giving you seven things to protect you from inflammation via your negotiations and contracts.
Let’s first look at some causes of inflation, all of which ultimately deal with supply and demand:
small supply + equal/increased demand = inflation
My wife was on the East coast a few weeks ago when the local pipeline was hacked and shut down for a few days. In a panic, consumers rushed to gas stations, yielding long lines and gas prices well in excess of $3.00. High demand, low supply, exorbitant cost. Voila, inflation.
The most glaring cause right now is disruptions of supply chains due to fallout from geopolitics, worker shortages, pandemic and/or regulations. We’re seeing a shortage of computer chips now standard for cars, which slows down the production of new cars, putting both new and used automobiles in high demand, and at a higher price point.
Meanwhile, free trade is hampered by intense regulation, high fees, tariffs and taxes, which are ultimately paid by consumers. A hundred years ago when I was an econ student at Georgetown University, we used Econ Nobel Laureate Paul Krugman’s work. Although his predictions have been reliably and famously wrong, he is correct in his recent statements that middle and lower income earners are most negatively impacted by inflation. Similarly, small and middle market businesses, especially those in low margin industries, endure the heaviest losses.
So how do you protect yourself from the Tsunami of inflation we are seeing?
Here are SEVEN ways to negotiate clauses in your personal life and business to get a handle on cost:
1. Determine which Consumer Price Index (CPI) population group to use in your contract.