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The franchising industry, like many consumer-focused economists, is making it a point to keep a close and watchful eye on inflation. This overriding concern is warranted, as inflation is a common denominator that cuts across all franchise industries, the vendors and supply chains that support them, and the end-user—customers who ultimately buy the products and services they have to offer. As prices continue to creep up, these cost increases keep getting passed along from one entity to another, but ultimately end up getting absorbed by consumers. But the franchise experts and prognosticators in our industry know—there’s not a finite amount of consumer price increases that customers will put up with. Left unchecked, runaway inflation could end up curtailing the very spending levels fueling our recovery from the pandemic.
First, the Bad News
According to October’s Consumer Price Index (CPI), inflation is quite real, and it’s already here. In a year-over-year comparison, the CPI is a full 6.2% higher—the largest increase since Nov. 1990. Furthermore, according to the Bureau of Labor Statistics (BLS), inflationary pressure is widespread across multiple industries and indexes. Contributing factors of the current cause of this inflation are a matter of hotly contested debate in the U.S., but it’s certain that supply chain disruption, labor issues, and the pace of vaccinations’ effect on the overall pandemic recovery have all played a part. As the Federal Reserve and current administration fight to mitigate inflation, it’s widely believed to be more than just a “transitory” case. One of the reasons inflation appears so noticeable is reflected in its impact on gasoline and groceries—two commodities that affect every American pocketbook. To date, in a year-over-year comparison, grocery prices are up 5.4% and gasoline 6.1%, respectively.
Now, the Good News
Certain prices are grouped together to form an index known as CPI inflation. As discussed previously, these include the most common and noticeable increases, such as food and energy costs. But when the CPI index is removed from the overall picture, the inflationary woes we’re dealing with now don’t seem at all insurmountable. Prices on all goods and commodities are approximately 4.6% higher over the past 12 months. That’s clearly above the Fed’s 2% target, but not nearly as concerning as some doomsayers might have you believe.
Are we experiencing a spike in consumer prices resulting from the perfect storm of commerce and industry challenges? Seems likely. Is it also possible that inflation is truly transitory in nature, ready to recede in the face of abundant consumer confidence levels? Maybe so. What we do know is that inflation does have the current attention of the people with the power to do something about it. The infrastructure bill was recently signed into law and the pending Build Back Better agenda stands poised to provide a second wave of economic stimulus that could be quite instrumental in beating back inflationary pressures.
30 years ago, the U.S. faced an unprecedented fight with runaway inflation, driven mainly by a loser takes all, tit-for-tat wage-price spiral. But most leading economists agree that our current bout with inflationary pressure looks nothing like the past. Wall Street and the investment-minded class maintain an expectation that inflation will eventually evaporate back down to the more manageable 2% range—precisely what the Federal Reserve Board thinks. And they’re the ones tasked with the job to manage it.
As North America’s leading franchise consultant firm, FranNet emphasizes on staying informed and up-to-date on economic conditions. We frequently post updates to our social media channels related to the small business climate, lending, grants, and other funding-related news. When you initiate a meeting with one of our qualified consultants, we’ll be sharing market insights based on 30+ years of franchise industry knowledge. There are many reasons to be hopeful that the economic conditions soon will continue to be favorable for the entrepreneurial-minded candidates. Contact us for a no-cost, no-obligation appointment and we’ll be happy to explain why.