{"id":2586,"date":"2022-08-09T13:40:42","date_gmt":"2022-08-09T13:40:42","guid":{"rendered":"https:\/\/nixq4qvp95-staging.onrocket.site\/?p=2586"},"modified":"2023-02-27T14:24:14","modified_gmt":"2023-02-27T14:24:14","slug":"how-are-inflation-and-rising-living-costs-impacting-businesses","status":"publish","type":"post","link":"https:\/\/www.adzuna.com\/blog\/how-are-inflation-and-rising-living-costs-impacting-businesses\/","title":{"rendered":"How are inflation and rising living costs impacting businesses?\u00a0"},"content":{"rendered":"

How are inflation and rising living costs impacting businesses?\u00a0<\/b><\/p>\n

In June 2022, US inflation rates hit 9.1%<\/a>, the highest since November 1981. Economists are suggesting that with a falloff in gasoline prices this could be a peak in inflation for now.\u00a0<\/strong><\/p>\n

Just weeks ago, the Senate agreed to a landmark $485 billion climate and health care bill, <\/span>The Inflation Reduction Act of 2022<\/span><\/a>. If the law is passed an unprecedented effort will be made to make homes across the US more energy-efficient, reducing energy bills and making a substantial shift towards green energy.\u00a0<\/span><\/p>\n

Despite these recovery plans, inflation will continue to impact employees and employers and recession could be looming as we enter 2023.\u00a0<\/span><\/p>\n

 <\/p>\n

What is causing current inflation rates?<\/h3>\n

Inflation is when the costs of goods increase and there are two reasons that this can happen. Supply chain issues and increased demand.\u00a0<\/span><\/p>\n

At the moment, we are experiencing both, which is very unusual.\u00a0<\/span><\/p>\n

With regards to the supply chain, there was a scarcity of all goods due to the coronavirus pandemic. There were factory shutdowns and supply chain system breakdowns in some of the world\u2019s largest manufacturing hubs like China which increased the prices of materials, manufactured goods, and transport. All of these costs are then passed on to the consumer.\u00a0<\/span><\/p>\n

We then all received Economic Impact Payments of $600 per adult and per qualifying child. This meant that people went on spending sprees creating a shortfall of goods in a range of items, from shoes to fridges. Again, this boosted price tags.\u00a0<\/span><\/p>\n

Then, in February 2022, Russia invaded Ukraine exacerbating issues even further. The war has disrupted trade in natural gas, oil, and grains. What\u2019s more, this also boosted the cost of fertilizer, so it is more expensive to grow food.\u00a0<\/span><\/p>\n

It\u2019s safe to say that inflation is now everywhere, impacting all areas of life and work, with global demand still on the up and the supply chain unable to meet this demand.\u00a0<\/span><\/p>\n

 <\/p>\n

How inflation is affecting living costs<\/h3>\n

One of the main indicators of cost of living increases is the CPI, the Consumer Price Index. On average, this has increased by <\/span>9.1%<\/span><\/a> in the last 12-month period.\u00a0<\/span><\/p>\n

The main drivers of cost of living increases have been energy, transport, and food. These costs have very little \u201cprice elasticity\u201d as there is a limit to how much consumers can reduce their consumption in these areas. I.E. a person cannot consume less food.\u00a0<\/span><\/p>\n

Food costs have risen by 10.4% while some fuel prices have almost doubled. A lot of these category increases are the highest since the late seventies or early eighties.\u00a0<\/span><\/p>\n

The impacts are felt differently across households depending on their income and race and ethnicity. The middle-class is being particularly squeezed with inflation sitting half a point higher for the middle-class than lower and higher income households. When we consider race and ethnicity within this picture, Hispanics and Latinos have seen the biggest jump in living costs.\u00a0<\/span><\/p>\n

Wage increases in the last 12 months have jumped significantly for some industries, especially some lower-paid ones. In the leisure and hospitality industries, for example, the average worker has seen a pay increase that is almost <\/span>double the rate of inflation<\/span><\/a>. One reason why lower-income households may be experiencing less of a pinch.\u00a0<\/span><\/p>\n

However, on average, pay increases have not beaten inflation in the last 12 months, in fact, most workers are <\/span>2%<\/span><\/a> worse off than they were a year ago.\u00a0<\/span><\/p>\n

 <\/p>\n

The fuel crisis<\/h3>\n

The fuel crisis is about far more than the war in Ukraine. Colder winters in 2021 meant we collectively used more oil and gas and depleted reserves. Then, when those reserves would usually be replenished in Summer 2021, some producers spent the time scheduling maintenance that had been postponed by Covid-19 lockdowns and restrictions.\u00a0<\/span><\/p>\n

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What\u2019s more, calmer weather meant wind power has also been limited in recent years. So a supply and demand issue for natural gas led to wholesale gas prices increasing by <\/span>4 times<\/span><\/a> in 2021.\u00a0<\/span><\/p>\n

Within the Eurozone, gas prices immediately increased following Russia\u2019s invasion of Ukraine as Russia is a huge source of gas to mainland Europe. Just last month, Russian energy group Gazprom said that it would be reducing gas flows to Germany to one-fifth of their normal levels due to maintenance. This has caused concern that Russia is weaponising gas supplies. Oil too has been impacted by these supply chain issues.\u00a0<\/span><\/p>\n

Although the US receives very little oil from Russia, oil pricing is based on global commodity markets, so the loss of Russian oil affects prices around the globe no matter where it is used. What\u2019s more, Russia\u2019s oil is slowly leaving the global markets as the US and EU both made moves to reduce Russian oil imports.\u00a0<\/span><\/p>\n

US oil companies have been reluctant or unable to resume oil production to pre-pandemic levels over concerns that tougher environmental rules could cut future demand. However, with the population more concerned about oil prices than anything else these laws have been scaled down or pushed back.\u00a0<\/span><\/p>\n

However, it will take time for production to scale back up, with the oil and gas industries experiencing the same staff shortages and supply chain issues as everyone else.\u00a0<\/span><\/p>\n

Again, the balance of supply and demand is off, pushing up prices of oil, gas, diesel, petrol, and aeroplane fuel. This pushes up the costs of transporting people and goods and heating homes and offices.\u00a0\u00a0<\/span><\/p>\n

With <\/span>The Inflation Reduction Act of 2022<\/span><\/a> still potentially on its way, households and businesses may become less reliant on these fossil fuels, but it will be a slow and steady shift.\u00a0<\/span><\/p>\n

 <\/p>\n

How will inflation impact businesses?<\/h3>\n

This year, businesses have had to increase wages substantially in order to come close to the rate of inflation. Despite pay increasing, workers are 2% less well off. A shortfall that could have a big impact alongside rising living costs.\u00a0<\/span><\/p>\n

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The US Federal Reserve has raised interest rates by 1.5 percentage points since March, in an attempt to curb spending and decrease demand for products, with more hikes expected to follow. These increases will dampen business activity and again lead to higher paycheques.<\/span><\/p>\n

And it is not just employee costs that are rising. Businesses too are impacted by the rising costs of goods, supply chain issues caused by the war in Ukraine and the Covid-19 pandemic, and office-based businesses are particularly hard hit by rising fuel costs.\u00a0<\/span><\/p>\n

 <\/p>\n

How will the gas crisis impact businesses?<\/h3>\n

Despite gas prices falling for over 50 days straight, businesses will continue to feel the pinch when it comes to buying goods, transporting goods, and manufacturing.\u00a0<\/span><\/p>\n

 <\/p>\n

Inflation and the labor market<\/h3>\n

We currently have over 8 million jobs listed across the US on Adzuna. However, there are <\/span>755,000<\/span><\/a> fewer people employed today than at the start of the pandemic, despite an increase of 4.2 million in the population of people ages 16 and older. A lot of this is due to an ageing population, and people leaving the workforce for good. Globally <\/span>75%<\/span><\/a> of businesses are reporting talent shortages, the highest in 16 years.\u00a0<\/span><\/p>\n

With unemployment at a 50-year low of 3.5%, there are simply fewer people looking for a role too.\u00a0<\/span><\/p>\n

Of course, one of the biggest incentives for moving roles is financial compensation, especially when employees are feeling the pinch at home. The average full-time worker\u2019s earnings increased by $3,100 over the past year but inflation has eaten away $5,300, leaving them effectively <\/span>$2,200<\/span><\/a> worse off.\u00a0<\/span><\/p>\n

Only <\/span>45%<\/span><\/a> of companies are sticking to the salary budgets they set at the beginning of the year, and with demand for new hires continuing to increase we will see salary and benefits going up. To hire and retain top talent, it\u2019s dog-eat-dog when it comes to spending on employees. Yet another hit to margins this year.\u00a0<\/span><\/p>\n

 <\/p>\n

How can businesses continue to entice and retain talent?<\/h3>\n

Research carried out by <\/span>WTW<\/span><\/a> shows how companies are responding to these skills shortages.\u00a0<\/span><\/p>\n

Of the companies they surveyed:\u00a0<\/span><\/p>\n