Rising input prices have been a concern recently as consumer demand stays at high levels despite multiple pandemic relief programs coming to a halt. It is very early to determine if the worry about inflation is warranted or not. First, forward-looking inflation expectations remain along with historic trends, credit terms and liquidity by borrowers remain loose. Second, inflation rate is distorted by the fact that we saw low prices and even deflation last year.

Inflation however only measures all of the goods in the economy, which might or might be relevant for one given small business and that is why we want to offer some guidance of how to protect your business against inflation:

• Take a good look at your margins: every business has products they sell at high margins and other products that they sell at lower margins. Lower margins products can easily become into negative margin products in an inflationary environment, we recommend taking a close look at these products and potentially eliminate the product line if the item becomes a negative margin asset.
• Invest in improvements in your business: cheap loans today become even cheaper in the future if inflation does take place and the business is able to raise prices for its products. This might be a good time to buy equipment, improve venues, or even train your employees
• Invest in your future production capacity: this inflation bump seems to be different than others in the past given it is being fueled by demand which businesses use to increase prices but also increase its revenues if they are able to actually reduce the cost of production through technology or by new substitute goods or services.

Source: https://fred.stlouisfed.org/series/T5YIFR

Source: https://www.dallasfed.org/research/economics/2021/0513.aspx

Regardless of what the future brings, your business will do well in taking a pause and think about this trend.