How Inflation in 2021 Affects Business

It’s no secret that prices on commodities like meats, lumber, and gas are higher than ever. In 2020, the Federal Government anticipated inflation to increase by 1.8%, on track with inflation rates over the past decade. But they were way off. At a 13-year peak of 5.3%, inflation has monstrously exceeded market projections – to the chagrin of consumers nationwide.

What is the Source of Inflation in 2021?

But why are prices on consumer goods increasing above anticipated levels? Where is this all coming from, anyway? Well, the answer is multifaceted.

Supply Chain Disruption

The supply vessel blocking the Suez Canal in March was a harbinger for supply chain disruptions. More than 200,000 shipping containers are now sitting at the Port of Los Angeles, filled with online orders such as holiday purchases and office supplies. The massive shift from brick-and-mortar to online consumption, ignited by pandemic-related closures in 2020, means more goods are being imported.

But why are these ships just sitting there? Well, there is a two-fold labor shortage: not enough workers to unload the containers and truckers to transport their contents. This shortage has led to ships being diverted to other ports, resulting in a domino effect of congestion.

Labor and Material Shortages

Both in labor and goods, shortages are a central factor for the present price hikes. Businesses looking to cope with the economic effects of material shortages – higher prices on raw materials – raise their prices to maintain profits. And the shortages are not confined to one sector of the economy; they are visible in industries like used cars, bacon, and even kids’ sneakers.

What’s more, the labor shortage is fueling the material shortages; and the subsequently increased prices hit everyone’s pockets. Without reintegrating the more than three million workers that are still unemployed, the deficits are expected to persist.

Higher Wages

Workers are demanding more. The effects of COVID are not merely medical or superficially economic (like the shutdowns in 2020); they are cultural too. Workers have a new vision of work. Preferring remote placements and calling for higher wages, they re-orient the economy.

Business owners shouldn’t find this shocking, considering the tide of union strikes washing over the nation. Distressed workers are advocating for higher wages and better working conditions.

What Inflation Means for Businesses in 2021

The sources of inflation are not atomized. They are deeply intertwined: responding, fluctuating, and feeding each other. Workers are concerned about their base pay and workplace conditions, making them more selective with employment prospects and creating a labor shortage in key sectors such as food service, factories, and manual labor. This labor shortage causes a spiral of disruption. Therefore, the effects of inflation are not confined to any specific industry but are pervasive and absolute, virtually inescapable.

But, above all, inflation means consumers are buying less. Since they’re spending more on necessities, their discretionary spending dwindles, and consumers have less to shell out for non-essential consumer goods. The erosion of purchasing power can erode businesses too.

This matrix of inflation shows no sign of slowing. Businesses can expect to pay workers more, hire less, and raise prices accordingly. If your company wishes to survive in this new economic environment, it must adapt to the mutable demands of the pandemic marketplace.

Business owners should consult legal experts to ensure they are on top of market trends, adjusting their revenue sources, and getting ahead of the effects of supply chain disruptions. The expert attorneys at Richards Rodriguez & Skeith can help. We make an ideal business partner with experience as dynamic as your needs. Contact us today to discuss ways to protect your business from inflation.