4 Ways to Overcome Inflation to Keep Business Smooth

Ngopisantuy.com4 Ways to Overcome Inflation to Keep Business Smooth, In the midst of economic turmoil, you must understand how to cope with inflation. Especially in the event of a pandemic that causes the economy to fluctuate.

However, before you can deal with inflation, you must first understand what it is.

According to the International Monetary Fund, inflation is a gradual decline in the buying power of specific currencies.

The quantity of things purchased with the same budget shows a quantitative drop in people’s purchasing power. People will buy less as prices rise.

Price increases are frequently stated as percentages. This percentage reflects one unit of currency purchasing less than it did prior to inflation.

4 Ways to Overcome Inflation to Keep Business Smooth

Deflation is the inverse of inflation. Deflation occurs when the buying power of money rises while prices decrease.

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4 Ways to Overcome Inflation to Keep Business Smooth

Inflation Types

Before learning how to cope with inflation, you need understand that it is classified into different forms. If you already know what form of inflation you are dealing with, you can decide how to deal with it.

Inflation may be classified into three categories. Inflation from the demand side (demand-pull inflation), inflation from the supply side (cost-push inflation), and built-in inflation are the three types. Here’s how it works:

1.Inflation caused by demand-pull

Inflation happens when an increase in the availability of money and credit causes the general demand for goods and services to rise faster than the economy’s production capability. This raises demand and drives up prices.

Consumer demand for products and services rises as more money becomes accessible to them. There is a mismatch between supply and demand, resulting in less availability and higher prices for available commodities.

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  1. Inflationary cost-push

Inflation generated by a cost push driven by price rises in the manufacturing process. When more money and credit are funneled into the commodity or asset market, the price of raw materials rises.

This raises the cost of the manufacturing process, which raises the price of goods and services for the ultimate customer.

  1. Inbuilt Inflation

Inflation is linked to adaptive expectations, which means that individuals estimate and anticipate that the present rate of inflation will continue in the future. Workers and laborers anticipate pay increases when the cost of products and services rises.

Wage rises, on the other hand, raise the cost of products and services. Prices and salaries are continually affecting each other in this causal loop.

Inflationary Factors

Of course, inflation does not happen by itself. The three forms of inflation discussed previously might develop for a variety of causes.

Some of the most prevalent causes of inflation are as follows. We can deal with inflation if we understand what is causing it.

  1. The occurrence of economic expansion

Unemployment falls and salaries rise in nations experiencing economic expansion. As a result, many people’s purchasing power rises and they are able to purchase tertiary items.

Prices grow as a result of the strong demand. As a result, additional employment will be created to match the increased demand.

In this perspective, inflation is viewed positively. However, a country must exercise caution so that the inflation rate does not become excessively high.

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  1. Increased Money Movement

Inflation is unavoidable if the money supply expands faster than the pace of economic development. When there is more money in circulation, demand rises and prices soar.

That is why Bank Indonesia cannot recklessly generate fresh money. This is done to control inflation at a healthy level.

  1. Policy of the Government

If the government imposes new, more expensive laws or tariffs, firms’ capital expenditures for raw materials and operating expenses would rise.

For example, if government actions cause an increase in industrial power rates or fuel prices, the industry’s operational expenses will naturally rise.

Companies often pass on increasing expenses to customers through pricing rises. This is the source of cost-push inflation.

  1. National Debt Administration

When the national debt is spiraling out of control, one of the government’s responses is to raise taxes to pay it off.

High corporate tax rates will force corporations to raise prices on consumers. This is also the source of cost-push inflation.

  1. Exchange rate fluctuations

When the rupiah’s value falls in reference to international currencies, it loses purchasing power. Imported goods entering Indonesia become more expensive to purchase.

The depletion of foreign exchange reserves was also a crucial reason in the rupiah’s depreciation. To increase foreign currency reserves, you must increase ekspor ketimbang impor.

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How to Deal with Inflation in Business

All firms must be ready for inflation. Furthermore, our country’s economic situations frequently undergo inflation.

Here are some strategies for dealing with inflation for company owners. It is essential to understand this in order to keep the firm functioning effectively.

Prioritize efficiency and productivity

Employee pay or salaries rise as a result of inflation. To sustain people’s purchasing power, the local government raises the minimum wage through laws on a regular basis.

Having a clear company plan and concentrating on production efficiency are excellent ways to reduce expenses. You can, for example, digitize certain business procedures that were previously performed manually.

Computerization

When it comes to improving the efficiency of corporate operations, automation is a great tool. Small companies may do the same, since there are now several apps that can assist you in automating monotonous operations.

From basic bookkeeping to client service and marketing, there is something for everyone. An ERP system, for example, helps simplify profit estimates, therefore preparing the organization for inflation.

Concentrate on Cash Flow

Cash flow is one of the most important variables that firms must address, especially when inflation develops. When business is slow, it is easy to overlook some tasks, such as payments and bills.

Keep a record of all bill payments. To keep your firm functioning, use financial reports to discover what’s outstanding, then follow up on unpaid bills.

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Author: Irawan
I'm a regular contributor to IRAWAN commander, and in my business blog, my team and I share tales on the experience of starting a business from zero, how it feels to build a startup, and how to scale-up.

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