News Flash – Inflated Prices are Still in Demand

How high can prices stretch up before demand snaps down?  Inflation hasn’t put much of a damper on spending yet, but it’s getting a lot of attention lately in corporate earnings calls, and some business leaders are concerned that rising prices will result in significant drops in demand.  Walmart and Kellogg are already seeing changes in their mix of business, and Ralph Lauren reports that its “value-oriented” customers are buying less.

In May, we wrote about the dreaded WPS (wage price spiral).  Whether or not a WPS is behind today’s high inflation rates, if the “price elasticity of demand” becomes stretched too far, the resulting backlash can hurt.  Like it hurt in the 1970s, when The Great Inflation required massive government intervention to tame, including federal-funds interest rates that went as high as 22%, after upending the US economy.

The International Monetary Fund (IMF) describes “why markets tick” by using “three little words”: supply, demand, and price.  But maybe that’s actually a ticking sound – Jamie Dimon, CEO of JPMorgan Chase, is using three other little words to describe today’s markets: “upcoming economic hurricane”.

Steps that business leaders and managers can take to brace for impact include:

  1. Get closer to your customers. Listen to them and innovate.
  2. Reduce costs by substituting materials and inputs and by carefully managing inventories.
  3. Manage workforce volatility by cross-training staff to fill multiple roles.
  4. Consider lowering prices – or at least don’t be perceived as price gouging.

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