Inflation’s Causes And Solutions

Simply speaking, inflation is a decline in purchasing power. When a consumer purchases anything from food or energy to vacations or movie tickets, everything costs more.

Inflation is an ever-present factor in our economy. It normally occurs at a rate around 2% annually with annual wage increases covering the problem.

But inflation rates are currently somewhere north of 8%. As such, consumers and business owners are getting squeezed economically.

There are three common types of inflation.

Demand-Pull Inflation

This occurs when governments send out more money than is normal and business/consumer credit is too easy to obtain. This causes over-purchasing. When there are more buyers than sellers, prices naturally increase.

Cost-Push Inflation

This occurs when the prices of commodities and the underpinning inputs of production increase. If energy is a main input to your product and its cost increases, then you will also need to increase your selling price to accommodate this expense.

Built-In Inflation

This phenomenon is about expectations. With the annual increases in wages, consumers buy more goods and services. This, in turn, causes an increase in prices.

The inflation now threatening our businesses and livelihoods has obviously been caused by all three of these factors.

Let me leave you with this.

The solution to inflation is both simple and painful simultaneously. Since it’s caused by over-purchasing and having more buyers than sellers of goods and services, the government must restrict the amount of money and credit in an economy to even things out.

The Federal Reserve Bank has already begun this process. It has begun raising interest rates and constricting the amount of money in the economy.

This is where the painful part begins. There isn’t any way that this won’t affect all of us.

The interest rates we pay on everything from credit cards to business loans have already increased. In the future, it will become very difficult for borrowers to even obtain lending.

The Fed has also begun the process of reducing the actual amount of money that’s in our economy, which will naturally have a “cooling off” effect. If less money is in the economy, then naturally consumers will spend less.

The rest of the solution then comes inside the government itself. Congress and the White House needs to curb its own spending. Unless the government stops over-spending, inflation will continue.

Since none of us are in charge of monetary supplies, interest rates, or government spending, what can any of us do? Not much.

Other than maintaining our quality, watching our efficiencies, and increasing our prices to cover our margins, there’s absolutely nothing that any of us can do.

The economy isn’t something that we control. But one thing is certain.

If you don’t respond, you’ll probably end up out of business.

Bad economies aren’t fun. They aren’t a good time on a Saturday night, but they are one of the things that entrepreneuring is about.

If you don’t do the hard work to protect your business, you’ll be out of a job. Don’t stick your head in the sand and expect this to blow over.

I know what I’m asking. We just got over two bad years, and here comes another. No one asked for this fight. No one wanted it, but here we are.

Once you’re done crying about it, dig a hole, shoulder a weapon, and get it done. It’s time to do what we were born to do. It’s time to lead.

It’s time to Entrepreneur.

Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Employee Retention Credits, M&A Due Diligence, Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,

Sincerely yours,

Chris Amundson
Accounting Solutions Ltd.

Note that the only professional services provided by Accounting Solutions Ltd. are those specified in a written communication from our office detailing the scope of services to be rendered and the terms and conditions applicable to the engagement.