Inflation – a Problem or an Opportunity for Business?

Banks were faced with the prospect of deflation and falling prices in 2015, which can prove problematic for consumer-facing businesses. Deflation can encourage consumers to delay purchases, in the expectation that prices will fall. This can negatively impact or serve implications for the value of firms’ stock holdings – they run the risk of holding inventories that are going down in monetary value.

However, modest inflation can encourage buyers to buy now, rather than delay and mask price changes for a brand. If inflationary pressures force all brands/companies to adjust prices, a price adjustment may go unnoticed. These are considered attractive to consumer good companies.

In contrast, a spike in price inflation is a serious concern to businesses – planning and investment decisions become harder, and it may be associated with recessionary tendencies in an economy, leading to reduced consumer spending. Some firms may hold onto their stocks for longer in anticipation that they will achieve higher prices tomorrow.

Handling Inflation

To an extent businesses can shield their customers from the effects of cost-based inflation, however, this does vary and depends on the size and branding of the company.

• Larger companies may have resources to smooth out prices and hedge the costs of key inputs.
• Smaller companies without a financial buffer may struggle to smooth out pricing, especially if their main input cost is scarce. For example, construction firms that rely on labour – inflationary pay increases can’t be stockpiled by the business in advance.
• Strong brands aim to maintain a constant base price for key products. This enables brands to position themselves in comparison to their competitors – if the product price varies, consumers may receive mixed messages about the brand, especially when the price indicates quality level.

Consumer good companies can use several methods to manipulate prices without changing the “list price”.

• The regularity of special offers and discounts is reduced.
• Suspension of formulation and/or sizes that are less profitable.
• Reduction of supply to channels which achieve lower margins.
• “Shrinkflation” – some consumer good companies reduce pack sizes, rather than raise prices.

How can IntaCapital Swiss assist businesses?

At IntaCapital Swiss, we offer financial services that facilitate funding for businesses and projects across the world, including the United Kingdom. We have a range of facilities available for those seeking loan values between £2m – £100m.

With our expert team of financiers, we can offer new projects and businesses immediate working capital across a wide variety of industries, subject to an adequate business plan and passing our due diligence.

To apply, complete our online application form – one of our Client Relationship Managers will review and get in touch to discuss your application. To find out more about IntaCapital Swiss SA facilities.