By: GreatAmerica on April 22nd, 2022
Looking Beyond the Clickbait: Understanding Inflation
Inflation rates are rising at the fastest pace since May 1981. But what does that mean for your business?
Originally published on July 14, 2021.
Media headlines point to continuously rising U.S. inflation rates that impact businesses and consumers alike. No one wants to hear their dollar is losing value but inflation also indicates there is more money available to consumers, an increased product demand, and climbing wages.
A small inflation rate increase is good – it signals the economy is progressing. The Federal Reserve aims to level the rate between extreme inflation and deflation. This equates to average inflation rates around 2% over time.
Back in summer of 2021, members of the Federal Reserve predicted the then high rates would wane prior to the end of the year. Yet, rates remain higher than ever, with no clear end in sight.
"In my view, an important part of the explanation is that forecasters widely underestimated the severity and persistence of supply-side frictions, which, when combined with strong demand, especially for durable goods, produced surprisingly high inflation," Federal Reserve Chair Pro Tempore Jerome H. Powell said in a speech given at the 38th Annual Economic Policy Conference National Association for Business Economics on March 21.
March inflation rates calculated by the Consumer Price Index (CPI) sit at 8.5% greater than 2021, which includes the 32% inflation increase in energy.
Economists use multiple indexes to calculate inflation. Each index takes a slightly different approach to analyzing inflation based off their specific data sets and collection methods.
If we look at the core CPI, March inflation drops to 6.4%, excluding the volatility of food and energy prices. This is the largest rate gain since 1982.
It’s important to compare index rates using the BLS and Bureau of Economic Analysis (BEA) websites to gain a full perspective on inflation reports rather than drawing conclusions based on singular index.
Consumer concern around the reported 8.5% headline CPI rate may originate from fear of a decrease in the power of the dollar as inflation rises.
We're still experiencing increased product demand, labor shortages (notably, the unemployment rate has fallen to 3.6%), and calls for higher wages as we all continue to recover from the pandemic. When these three factors intersect with each other, it creates a perfect storm for an increase in inflation.
The Federal Reserve is responsible for stabilizing prices across the U.S. This is done by raising the federal funds rate target range. In March, the rate was raised by 25 basis points, to a range of 0.25% - 0.50%. Rates are expected to rise incrementally into 2023.
Through these efforts, the Federal Reserve hopes to stabilize prices without hurting the currently robust U.S. economy. This approach may decrease consumer demand for products that aren’t considered necessities. Lower demand allows manufacturers to catch up with current needs in the general marketplace.
What Does This Mean For You?
We’ve experienced compound increases in rates during the last few months – leaving options for you to adjust your buying and selling habits to increase your business opportunities.
Smart consumers notice increased product demand and rising prices that currently exist in the market. Demand increase forces consumers to make a list of their needs and wants; and likely, invest in those items that are necessities for their company or organization before the next company trip or retreat.
As equipment providers, you have the unique (and privileged!) position to supply necessary items to consumers. How you handle increased demand will cement new and existing relationships with your customers.
While a consumer can identify their needs, unfortunately, demand for those items is still higher than supply. Signs of supply chain improvement are occurring in some industries but will likely continue to pervade the market in the coming months.
Offer a Solution to Inflation and Supply Chain Issues
To combat both inflation and supply chain issues you and your customers may be facing, consider adding a monthly payment option to your line of payment solutions. Finance offerings enhance the leasing and buying experience for your customers.
When using a monthly payment, customers can lock in a price for an extended period: instead of worrying about potential inflationary costs increasing the cost of their equipment, they will know their equipment price will stay consistent throughout the term of their financing agreement.
Once your customers are a few months into their financing agreement, they use money that inflation has caused to be less valuable. However, instead of spending that money on increased costs, they’re spending it on a fixed payment amount.
Additionally, financing solutions allow your customers the freedom to upgrade their stack as technology is updated. Purchasing equipment with cash often means waiting until the equipment no longer works to upgrade. When your customers finance, they can opt for upgrades as they become available.
Inflation touches every industry. How you understand and handle those challenges makes all the difference. Recommend solutions that directly benefit your customers and watch your own business grow.
Do you want to give your customers a full picture look at their technology financing options?
GreatAmerica is the largest independent, family-owned national commercial equipment finance company in the U.S. and is dedicated to helping manufacturers, vendors, and dealers be more successful and keep their customers for a lifetime. A $2.4 Billion company, GreatAmerica was established in Cedar Rapids, Iowa in 1992 and has a staff of over 600 employees with offices in Iowa, Georgia, Minnesota, and Illinois. In addition to financing, GreatAmerica offers innovative non-financial services to help our customers grow. www.greatamerica.com