Strategic Options to Deal with Inflation

Strategic Options to Deal with Inflation

Anyone buying a new car, or even a cup of coffee, has noticed that prices are going up. 

Last month, inflation accelerated at its fastest pace in about 13 years as the economic recovery gained steam, the Labor Department said. Year over year, prices increased 5.3%. 

Meanwhile, median household income fell 2.9% during the pandemic, the first significant decline in nearly a decade, according to new data from the U.S. Census Bureau.

However, there are ways to combat inflation even without a pay increase. 

Recalibrate and Clean Up the Portfolio

Companies have several ways to implement this option. They can bundle or unbundle existing products, either to create new value propositions or to expose customers to lower price points for the disaggregated goods and services they want to buy.

They can draw on insights from behavioral economics to change price gaps in order to steer customers toward more profitable offerings.

Depending on what they have in their R&D pipelines or how flexible their production capacity is, they can also introduce less-expensive alternatives or, counterintuitively, introduce higher-end products that make the existing product line appear more affordable.

Invest in yourself and be the best at what you do

Investing in your own talent is one of the best ways to maintain your purchasing power over time, Buffett told shareholders in 2004. The best surgeon or lawyer in a city or town benefits from an education paid for in “old dollars” but is able to price their services in current dollars without having to re-educate themselves.

Consider bulking up your resume by learning a new skill through online resources or a local college. Pursuing advanced degrees can be expensive, but they can also help grow your knowledge base and make you an indispensable employee in the future. Increasing your value to your employer and its customers will help you command your fair share of earnings over time.

Government Benefits

Inflation can be a good thing for workers, but it’s an unquestionably bad thing for anyone who’s living on a fixed income — that is, an income that never changes, no matter what happens to the economy. Examples include retirees living on Social Security benefits and disabled people receiving Social Security Disability Insurance (SSDI).

In theory, these benefits automatically change each year to make up for inflation. According to the Social Security Administration, the Cost of Living Adjustment (COLA) for 2021 is 1.3%. So, as long as annual inflation stays below 1.3%, people receiving Social Security should be able to buy as much or more with their benefits in 2021 as they could in 2020. 

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