Other things to consider
How is inflation impacting output?
Supply chain — raw materials, transport, interrupted or prolonged delivery periods
Wage costs and strike actions
Higher production/rental costs
It might discourage companies from taking risks around production (volume, quality, allocation of resources, etc.)
Cash availability — both the producer and customers
Impact on output will depend on the type of inflation (cost-push vs demand-pull)
How can productivity mitigate inflation?
When a workforce is more productive it produces more goods and services, and at a lower cost per unit.
This means there is a greater supply, which puts downward pressure on prices.
To raise productivity companies and government need to invest in skills, equipment, and new technologies.
What would finance do about it?
Focus on productivity as monitoring it allows the business to see where price increases are needed due to inflation or are linked/due to more internal costs/systems/lack of productivity.
Model how the firm can succeed in a medium-term inflationary environment.
Model productivity enablers in a medium-term inflationary environment.
Discuss and decide how to achieve predictability — long-term contractual commitments, fixed prices.
Facilitate discussion around what efficiency and value optimisations are possible.
Discuss how much would customers be able and willing to pay for the new/modified product.
Business is grappling with supply chain issues, inflation, and sustainability issues, and two things are clear: The three topics are intertwined.2
Business needs to take a view on inflationary pressures and their impact on consumer behaviours
As environmental concerns grow, people globally are modifying behaviours to be more eco-conscious, but this change can halt and even reverse because of the cost-of-living crisis and rising global inflation.
Kantar recently conducted a survey across nationally representative samples in nine major markets, looking at consumer behaviour related to sustainability.
They found a range of outcomes and reported a number of interesting findings on this:
64% of people globally report wanting to do more for and be more mindful of the planet and environment, but the cost of living prevents them from doing so.
This sentiment is most prevalent in Brazil (75%) and least in China (53%). This feeling also decreases with age and household size
There is also a polar opposite consideration that inflation may drive sustainable behaviours forwards and that inflation and sustainability may actually drive forwards a new form of sustainable resilience.
Larry Dignan in a blog post for Celonis in April argued, “Companies are betting on technologies including process mining, execution management and automation that can make them more efficient to weather the macroeconomic turmoil. Sustainability will be seen as a way to create more resiliency in the future and save money.”3
A similar optimistic view was found in Kantar’s Global Issues Barometer published in June, which stated, “[A]lthough inflation is a key concern for people, it is not experienced in a vacuum. In people’s minds, challenges linked to the economy and climate change are altogether amounting to a general sense of risk and both need to be solved.”4