There is a lot in the news about how inflation has been hurting consumers and that is undeniable. However, the impact on businesses is less spoken about. That is not to say that businesses haven’t faced significant challenges as a result of inflation rising to 10.4%. 

The following are just some of the ways in which businesses have been impacted:

Running costs

Similar to consumers, businesses are also being affected by the increase in running costs. Most notably, energy and travel costs are causing a significant strain on many companies. The rise in costs across the board has forced businesses to do a thorough review of their spending. 

This has seen businesses make changes such as closing offices and encouraging home working or taking advantage of the increased accessibility of virtual meetings rather than travelling to meet clients or to attend events. 

Material costs

The cost of raw materials and supplies, such as plywood for builders, has increased. Therefore, businesses then must decide between facing a decrease in profits or taking the risk of passing the additional cost to consumers. Doing the latter is likely to also cause a decrease in sales and ultimately impact the bottom line.

Staff costs

As mentioned, individuals have been majorly impacted by the increase in inflation and the current cost of living crisis. As a result, many employees turn to their employers to seek a salary increase to compensate for this. If businesses aren’t able to meet these demands, then there could be subsequent staff retention problems which can then lead to increased recruitment and training costs. 

Investment opportunities

Due to the current state of the economy, some businesses have seen opportunities for investment or external funding no longer available. Economic uncertainty causes increased caution when it comes to spending of any kind and this applies directly to businesses receiving new funding or investment. This means that certain businesses may not survive or must reassess projects and expansions that were planned.

Consumer habits

Consumers are changing their shopping habits as a direct result of inflation. This is something that businesses aren’t able to ignore. With consumers no longer prioritising brand loyalty and having a much greater focus on price, businesses are forced to adhere to this as best as possible. This likely includes offering increased promotions and rewarding loyalty where possible. Businesses that offer non-essential products and/or services are most likely to be impacted by this and they will inevitably experience a fall in demand. 

Lead times

A less obvious impact of inflation is increased disruption to the supply chain. With businesses across all sectors struggling, the production of goods is frequently impacted which in turn creates a bottleneck and a subsequent rise in cost due to a rise in demand. 

This has seen many businesses forced to swap suppliers or face lengthy delays. Both of which have additional financial implications. 

Inflation isn’t just impacting consumers, it’s challenging the whole supply chain. The costs that many consumers are facing are a direct result of the challenges faced by businesses and these are likely to last for some time.