Manage Your Margins
The financial community is trying to assess whether the inflation we are seeing is “transitory” or not, and what “transitory” means. According to the notes from July’s Federal Reserve Board meeting, the Fed generally expects elevated inflation for the remainder of 2021 but sees inflation moderating in 2022. The United States Department of Labor reported recently that the consumer price index rose 5.4% in July, compared with the same month in the previous year. The price of West Texas Intermediate crude in August 2021 has been in the range of $62-$70 per barrel, a huge increase compared to early pandemic pricing, and an increase over the 2019 average closing price of $57.
My personal view is that inflation will remain elevated for some time because of several factors, including worker shortages driving higher wages; significant pent-up demand for all kinds of items, like household appliances, cars and furniture; and supply chain problems caused by COVID-induced plant closures, worker shortages, port closures, severe weather and low inventory. Given this backdrop of higher prices for goods and services, businesses need to closely manage their margins during the next six to 12 months.