In January, the Australian Bureau of Statistics announced that inflation had risen to a whopping rate of 7.8% for the year to December 2022. Since this is the highest level of inflation that we have experienced since 1990, the team and I thought we’d create this supplementary blog post to explain what inflation actually is and what it could mean for you/your business.
What is inflation?
Inflation is a measure of how much more expensive a group of goods and services has become within a specific timeframe, typically a year. It occurs when the demand for goods and services exceeds its supply, leading to a rise in prices. Since supply cannot be easily increased, prices go up to reduce demand, eventually leading to a new equilibrium at a higher price level. This causes a ripple effect throughout the entire supply chain, leading to a reduction in the purchasing power of the local currency. Households in the economy will face increased financial pressure and demand higher wages, putting more pressure on input costs, and exacerbating inflation.
Inflation can impact small businesses in a variety of ways, but some of the main ways are:
- Increased operating costs
- Reduction in consumer spending
- Labour pressures (financial and/or retention)
- Difficulty in securing finance
For more tips on how to protect yourself and your business against inflation, click here.
For personal assistance from our team in implementing strategies to protect you and your business in our current economic climate, don’t hesitate to contact our team.
