An increase in prices, also known as inflation, carries problematic potential for companies. The phenomenon of inflation has always caused budget, salary, and pricing problems for boards. Board members must analyze and respond to the rate of inflation in the economy. When inflation rates rise, wages must also rise in order to maintain a healthy and productive workplace.
In an inflationary environment such as the one we are experiencing at the moment, the board of directors has an obligation to pay more attention to detail and become involved in the nitty gritty budgeting processes. Inflation will vary sector by sector and subsection by subsection, and the board of directors should be attentive to detail instead of taking their usual future-facing view of the problem.
The rate of inflation is at the highest it has ever been in 47 years. In March of 2022, consumer price costs rose by 8.5%. Likewise, between March 2021 and March 2022, the producer-price index rose by 11.2%. In this same time frame compensation rose 4.5%, wages rose 4.7% and benefit costs rose 4.1%. Many boards across America are going into this inflationary period with little or no idea as how to handle rising prices. The last time we saw inflation at this rate in America was almost 50 years ago, and we are sadly lacking in our memory and recollection of how to counter and solve these problems.
The goal is to look at past inflationary periods and learn from them in order to continue to grow and thrive even post-inflation. This new period of inflation, post-Covid, will demand even more of board members. It is easy to be defensive in the face of obstacles, however, it is useful to take an offensive approach in this situation, to learn from past mistakes and to cast our eyes to the future.
In our current inflationary period, companies are again faced with difficult decisions, such as compensation increases, budget increases, and wage increases. Price stability is the cornerstone of our economy, so when companies are faced with a problem, such as inflation, it is critical to have a plan of action in order to offset some of the negative impacts.
Luckily, companies have a growing awareness of what needs to be done. Much of the action will rest on the board of directors, and they will have to become even more detail-oriented and create a plan for the health of their business and the economy.