Corporate financial managers should consider the macroeconomic variable
of inflation. One of the most critical factors for industries to monitor is
inflation. It is projected that the dollar had an average inflation rate of 2.80%
per year between 2022 and 2030. To put this in perspective, $1,000,000 in
2022 is predicted to be equivalent to $1,247,276.94 in 2030. This calculation
is based on the future inflation assumption of 3.00% per year (Inflation
Calculator, 2023). This impacts corporate financial managers in several
ways. Inflation impacts businesses in both positive and negative ways. Here
are some of the most common: Disruptions to the supply chain, Raw
materials shortage, Increased overhead costs, Increased interest rates,
Increased Consumer Price Index (CPI), Decreased consumer spending, Low
Return on Investment (ROI), Increased employee wages, Lowered cost of
old debt, and Increased competition (U.S Risk, 2022). One of the most
extensive results of inflation is increased prices for goods and services. This
leaves managers with a few decisions to help the business to survive and
thrive in a time period of high inflation. One option involves increasing
prices to match inflation to maintain profit margins and avoid being priced
out (U.S Risk, 2022). A second option is offering promotions or discounts to
offset price increases on goods and services. Rising interest rates that
characterize inflation can hurt businesses that need to borrow money (U.S
Risk, 2022).
This also affects managers during the hiring and recruiting process. It’s
important to note that the unemployment rate currently remains relatively
low and job growth continues to remain robust based on lagging government
statistics (Winans, 2022). However, consistent unpredictability around
inflation, a looming recession, and overall economic uncertainty will
undoubtedly impact unemployment and job growth (Winans, 2022).
Managers should find ways to operate as efficiently as possible. Focus on
keeping operating costs under control and managing the workforce through
attrition. When employees leave, managers should evaluate if the position
needs to be replaced, repurposed, or outsourced (Winans, 2022).
Inflation and salary increases generally follow similar trends, but salary
increases and inflation don’t follow a one-to-one ratio (Ward, 2023). For
example, if inflation increases in the US, salaries have historically increased
as well, but not always by the same percentage of the inflation increase
(Ward, 2023). This class covered many rates. I am currently on a job search.
Keeping that in mind, I will have to make sure the wages offered are in trend
with the current inflation rate.
These inflation rates also affect my spending. This is also true for many other
consumers. Research by intelligence company Morning Consult shows that
56% of U.S. consumers are willing to shop less overall — some 75% said
they will delay the purchase of an electronic device, while only 36% said
they will buy fewer groceries (JP Morgan, 2023).
References
How inflation affects management decisions. U.S. Risk: Opening the Door
to Underwriting Expertise and Market Access. (2022, September 23).
Retrieved January 19, 2023, from https://www.usrisk.com/about-us-
risk/news-and-articles-all/9-23-22-how-inflation-affects-management-
decisions/
Inflation and the cost of living: J.P. Morgan Research. J.P. Morgan. (2023).
Retrieved January 20, 2023, from
https://www.jpmorgan.com/insights/research/inflation-cost-of-
living#:~:text=Rising%20Inflation%20Means%20Consumers%20Will%20
Buy%20Less%20Overall&text=Shoppers%20are%20prioritizing%20staple
s%20over,they%20will%20buy%20fewer%20groceries.
Inflation rate between 2022-2030: Inflation calculator. 2030 Inflation
Prediction | Future Inflation Calculator. (2023). Retrieved January 19, 2023,
from
https://www.officialdata.org/us/inflation/2022?endYear=2030&amount=10
00000&future_pct=0.03#:~:text=The%20dollar%20had%20an%20average,
assumption%20of%203.00%25%20per%20year.
Ward, D. (2023, January 18). How does inflation affect salary increases &
payroll?=. Merchant Maverick. Retrieved January 20, 2023, from
https://www.merchantmaverick.com/how-inflation-affects-salary-and-
payroll/
Winans, L. (2022, November 2). Council post: How inflation affects the
labor market. Forbes. Retrieved January 19, 2023, from
https://www.forbes.com/sites/forbesbusinesscouncil/2022/11/01/how-
inflation-affects-the-labor-market/?sh=425296ed5a8e
