Prices are going up. We've all noticed it, and it's maybe even got us a little panicked. So, when can we expect to see inflation start slowing down? Well, expert economists are expecting to enter a period of disinflation and slowed growth in 2022 and 2023. Below we have listed ways economists are saying inflation will impact spending and business growth — something all business leaders should take a look at.
* All ideas and information presented in this blog post were taken from or modified from our podcast hosting Jackie Greene, Vice President of Economics at ITR Economics.
Understanding What's Happening With Inflation
In today's world, expect to see inflation impact things in a couple of different ways. As Jackie Greene from ITR Economics says, "it depends on what side of the coin we're looking at." If we're looking at dollar-denominated series, such as new orders, wholesale trade, retail sales, etc. — that inflation number will be felt there. Real growth is still happening. However, inflation is amplifying some of these growth trends.
In 2022 and 2023, ITR Economics is expecting to see disinflation. Prices will still be increasing, but not at the crazy rate everyone's been seeing and fretting about. Disinflation is NOT deflation. That's important to note. So before we move on, let's cover the difference between these two terms:Disinflation - a decrease in the rate of inflation
Deflation - reduction of the general level of prices in an economy — deflation occurs when the inflation rate falls below 0%
So with disinflation on the horizon, we will be moving to the backside of the business cycle, where things will begin slowing. Economists are already seeing disinflation happen in some components, primarily in the commodities. Experts say the leading indicators clearly point to this trend occurring, so you can confidently expect slowing inflation rates in 2022 and 2023.
* Business cycles in economic terms are intervals of expansion followed by recession in economic activity.
3 Actions to Consider Taking Right Now
There are different things you can do to take advantage of the current economic climate. Consider the following for your business:
Price Increases In The First Half of The Year
If you are currently setting pricing for products or services, you will have more luck putting through price increases during the first half of this year. This period we're in where everyone is comfortable eating those price increases will fall by the wayside when we see disinflation start to hit in the second half of the year. The numbers are high right now, and everyone can easily understand the need for businesses to protect their margins. But as that disinflation trend develops throughout the year, it's going to be harder to mentally get people to accept higher prices. So do it in the first half if you're going to put through a price increase.
Use the Producer Price Index
Another thing you can be doing if you are setting contracts with pricing, is to utilize both the Consumer Price Index and Producer Price Index. With your suppliers, use the Consumer Price Index to determine prices in contracts, with your customers use the Producer Price Index. They are two different numbers. The Producer Price Index typically has a higher rate than the Consumer Price Index. So utilizing the delta between the two to your advantage will help protect your margins just a little bit.
Be Mindful of How Inflation Will Impact All Your Measures
Be very mindful that even though we're talking about disinflation, we are not going to go back to the period of 2010 level inflation — it's going to be a higher level than you were used to in the last decade. You need to be planning for this inflation through all your measures. It's not just your pricing, it's all your expenses. So be mindful of that and start preparing for those things.
Stay On Top Of How The Economic Climate Will Impact Your Business
So, how do you know when 2022 and 2023's changed economic climate will impact your business specifically? ITR Economics strongly encourages their clients to be calculating and tracking their Rates-of-Change and to be using Leading Indicator inputs in their business strategy.