From inflation to supply chain bottlenecks to labor shortages, business owners are facing a number of challenges today. According to a recent survey by the National Federation of Independent Business, of the aforementioned challenges, business owners have cited inflation as the single greatest pain point. The survey reports that three out of every four business owners reported inflation negatively affecting their business over the past 6 months. For the full year 2021, the consumer price index came in at a scorching 7%, the highest 12-month increase since 1982. The rate of inflation has largely been driven by supply chain bottlenecks which were created by disruptions caused by COVID and a soaring recovery in demand, without enough inventory to keep up. Additional inflation has been driven by the increasingly competitive labor environment, which has led to hourly wages growing at over 4% according to Paychex | IHS Markit Small Business Employment Watch, the fastest pace since the study began 10 years ago. While inflation is expected to ease throughout the year as supply chains continue to loosen, uncertainty around Covid is a key variable that could lead to inflation sticking around longer than anticipated.

In light of this economic backdrop, what actions should business owners be considering?

• With the prospect of rising costs in 2022, business owners may consider building up additional inventory at the current presumably lower prices.
• Business owners should look at opportunities to sweep extra cash into interest-bearing accounts. To battle rising inflation, the Federal Reserve is expected to increase short-term interest rates 3-4 times in 2022. As interest rates increase, so should interest rates on money market sweep accounts.
• As interest rates increase, so will the cost of debt. Business owners with existing debt should consider looking at opportunities to refinance in anticipation of rising loan rates.
• Additionally, business owners should consider refinancing variable rate debt, such as credit card debt, into longer term and potentially lower fixed rates.
• Business owners should also consider investments in technology. Strategic investments in technology can allow a business to increase productivity with the same or smaller workforce and increase automation.
• Lastly, now is a great time to review your investment portfolio with your financial advisor to ensure your investment portfolio is strategically positioned for both inflation and the prospect of rising interest rates.

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