Vol 19 (2022) - Issue 4

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Competitiveness Amidst Inflation and When Rates Are Going Up

Synopsis
The global economy in 2022-2023 will witness an inflationary environment, combined with raising interest rates to tamper it. Central banks’ long-term rates have been low for long, contributing to continually strengthening economic activity. Pent up demand following the Covid pandemic, as well as the ongoing war in the Ukraine and supply chain shortages accelerated global energy and materials price inflation.
Corporates have mostly been able to pass on the inflation cost on to their customers, but in a depreciating real income environment, they may now face difficulty in doing so. Depending on a single country’s current rate of inflation (projected in April to be 5,7% in the advanced economies on average in 2022), impacting food and energy prices, the real income of individuals is depreciating in varying degrees in the absence of rising salaries. When the consumer is not willing to pay a higher price for basic or premium products, corporates need to strategise harder to retain or increase profitability.
This article postulates what drivers exist in this new business environment for corporates as they look to continue to boost profitability and competitiveness.
The ways to boost profitability could include finding new revenue streams, right-sizing the cost base, or consolidating an existing market leadership position by acquiring competition (if possible). The article speculates on some key factors that can support companies in realising these goals.