Looking Beyond the Clickbait: Understanding Inflation Blog Feature

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By: GreatAmerica on July 14th, 2021


Looking Beyond the Clickbait: Understanding Inflation

The U.S. is reportedly experiencing a “surge” in inflation. But what does that mean for your business?

Media headlines point to rising U.S. inflation rates that impact businesses and consumers alike. No one wants to hear their dollar is losing value – but really, inflation indicates there is more money available to consumers, an increased product demand, and climbing wage prices.  

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. 

In May, inflation rates clinched front-page spots on news sites and media channels as rates hit 5%. The spike is the largest year-to-year increase since 2008.  

Clicking on a headline that publicizes an inflation rate of 5% limits user understanding of the index system. That eye-catching number is just that: eye-catching. Media conglomerates rely on the largest rate to gain page traction and attention to their site without supplying all rate calculations for readers – which aren’t all equal to 5%. 

The Consumer Price Index (CPI) grabs the most media attention because it drives Social Security benefits; however, 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, May inflation drops to 3.8%, excluding the volatility of food and energy prices.  

Instead of relying on news media to portray a clear picture of inflation, compare index rates using the BLS and Bureau of Economic Analysis (BEA) websites to gain a full perspective on inflation reports.

Inflation Today

Consumer concern around the reported 5% headline CPI rate may originate from fear of a decrease in the power of the dollar as inflation rises.  

Before you panic, consider where the economy was one year ago. 

In May of 2020, inflation rates sat at just 0.2%...significantly lower than the Federal Reserve’s target inflation rate.

Prices dropped as demand decreased, production costs weaned, and unemployment rose as the pandemic created an unprecedented problem globally.  

Inflation rates bottomed out during 2020 – sitting below rates for 2019. When economists calculate the year-to-year inflation rate for 2021, the referenced base rate sits far below what economists predicted had the pandemic not occurred.  

While the “predicted” rate is hypothetical, referring to U.S. history of steady inflationary growth creates a healthy situation to analyze what could have happened in 2020. The hypothetical growth rate puts current U.S. inflation rates within reach of the Federal Reserve’s 2% goal.  

Of course, the pandemic did happen – and inflation is higher than recent years. 

Now, we're experiencing increased product demand, labor shortages, and calls for higher wages as we all recover from the pandemic. When these three factors interact with each other, it creates a perfect storm for an increase in inflation.  

As the world returns to a pre-pandemic economic and social structure, it’s expected these factors return to “normal” rates. Federal Reserve Chair Jerome Powell trusts rates will wane as the economy recovers from the pandemic.

What Does This Mean For You?  

We’re told to expect a transitory increase in rates in coming 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 recovering from the pandemic. How you handle increased demand will cement new and existing relationships with your customers.  

You can discern what manufacturers are the best fit for your business. Recommend solutions that directly benefit your customers and watch your own business grow. Next time you find inflation rates trending on Twitter, don’t panic! Do your research and create a situation that benefits your business. 

GreatAmerica

Founded by CEO Tony Golobic in Cedar Rapids, Iowa in 1992, GreatAmerica is a $2 billion national commercial equipment finance company. GreatAmerica is dedicated to helping manufacturers, vendors, and dealers be more successful and keep their customers for a lifetime. GreatAmerica is family-owned and provides financing, third party portfolio servicing, and niche market-focused services in all fifty states and several U.S. Territories and has a staff of over 500+ employees with offices in Iowa, Minnesota, Missouri and Georgia.

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