As the Federal Reserve Bank meets today to raise interest rates, the wholesale annual inflation rate topped 10%. From last February at the beginning of the new administration’s term to last month, wholesale price increases have now hit the double digits.
Overall prices for goods rose 2.4% inside the month. 40% of the February increase was directly attributable to the soaring price of energy.
This comes as the Fed meets to raise interest rates for the first time since 2015. At the beginning of the pandemic, they kept interest rates low to stimulate the economy.
Now that inflation is raging globally, they must do the opposite to cool things down, trying to get inflation under control. Most economists are expecting between 5 and 7 interest rate hikes in the short term.
A slowdown in global growth is expected this year, but now economists are talking recession. While the risk in our country is minimal, a misstep by the Fed in being too aggressive with their interest rate policies, could force us into one.
That’s right. I just used the dreaded “R” word.
The concern is that between the War in Ukraine, the new C-19 variant raging in China, and our continuing supply side issues, that the Fed won’t be able to control inflation. If it goes out of control, then the Fed might overadjust, pushing the economy into a recession.
Let me leave you with this.
Most people don’t realize how little an Entrepreneur can actually control. Certainly we control the four P’s; which are product, price, promotion, and place. But that’s it. Past that we’re powerless.
There are five externals completely outside of our control. Things like the legal environment, technology, and what our competition does are part of the externals. These issues we can only respond to.
The economy is certainly one of those externals. Responding to it in a contracting economy is all about maintaining your margins and keeping cash in the till.
We need to do both. One without the other is useless.
In bad economies, you’re going to have bad months. Period. End of story. I’ve shepherded my businesses through enough of these to know that no matter what you do, sometimes business just won’t come in. And you need cash to get over those times.
When the business does come in, it must be profitable. You have to maintain your margins. If that means that you lose some business to someone down the street who thinks they can do it for less, then you need to be smart enough to let it go.
The best thing you can do for your business is to send that business down the street so that those bad customers can put your competitors out of business. Many of those customers will come back to you once the competitor is gone.
Take a moment. I need you to think about that.
For many, this will be a completely different mindset. Something new that must be learned, but learn it you must, if you plan on getting through this upcoming economy.
If you’re the fool who takes in that lower priced work, how are you going to get through the lean months? You won’t have enough cash in the till to make it.
Again, it’s a completely different mindset. One based on conservation and control rather than aggression.
That being said, we’ll be raising our prices in order to maintain our margins. It won’t happen right away, probably right after this tax season. It’s long overdue. We haven’t raised our base prices in almost a decade.
We gave our entire staff a monster raise last December to make sure we wouldn’t have any defections going into this tax season. Between that, the never ending property tax increases, and everything else skyrocketing, what choice do we have? If you have questions, please let me know.
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, PPP Loan Forgiveness, 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
www.AccountingSolutionsLtd.com
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