Stagflation has now officially become a potential problem for our economy. This refers to a period where prices rise as well as unemployment.
We last dealt with it back in the 70’s.
The Consumer Price Index (CPI) from August rose to 2.9% from 2.7% in the prior month. Core CPI numbers, that exclude volatile food and energy prices, increased 0.3% to 3.1%.
Meanwhile back at the ranch, unemployment claims also rose 27K placing 263K workers on the unemployment rolls. This puts the Fed in a difficult position.
What do they do?
Normally they would raise interest rates to cool down the economy in an effort to control inflation. On the other hand, they would normally lower interest rates to heat up the economy to get people back to work.
Hence the major problem of Stagflation. There really aren’t any quick fixes or reasonable solutions to the issue.
Periods of Stagflation, like back in the 70’s, normally last for longer periods where prices rise unchecked with unemployment runs rampant. It’s generally acknowledged that we were victimized by Stagflation from 1973 through 1982.
The Fed is meeting next week to go over their interest rate policies. It’s generally assumed that they will lower rates by a quarter point, but these new economic readings put that possibility in jeopardy.
We’ll see what they do.
Let me leave you with this…
We all knew that the imposition of a broader system of tariffs would be inflationary. But given the length and timing of most supply chains, we’re yet to see the full extent of pricing increases.
This problem isn’t over by a long shot. Most economists believe that the full inflationary extent of the tariffs won’t hit our economy until the beginning of next year.
As such, your monthly financial statements are more important than usual. You’ll need to watch your costs like a hawk, trim any fat in your organization, and not be afraid to raise your prices.
Be conservative in the management of your businesses. This isn’t the time to take on any additional risks.
Put your new projects on hold for the time being. This economy could go either way without much notice. Maintaining your margins is what this period will be about.
I’ve spoken to many entrepreneurs about how they are handling the problem, and one theme seems to be prevalent.
Those who aren’t afraid to raise their prices, are maintaining their margins and doing well. By contrast, those who are afraid of pricing increases are having a rough time. Some of the financial statements I’m producing are rather frightening.
We all need to get our heads wrapped around this and face it head on. Expecting the problem to go away on its own is no way to manage an enterprise.
The business you save may be your own. If you need to talk, you know my number…
We’re all going to get through this. Let’s get through it together.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,
Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
773-267-7500
888-310-0300
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