Understanding the Pandemic Inflation Spike

The pandemic has everlasting effects on various areas of our daily lives, but one area where the effects will be felt for many years to come is the inflation spike. According to Bloomberg, U.S. inflation hit a 40-year high of 7.9% and this was even before the oil spike.

With geopolitical issues, prices are expected to rise even more over the next few months all across the world. Just like the rest of the world, inflation has also hit Hong Kong, which not only affects consumers but businesses as well.

So, what are the causes of inflation? How can businesses survive the inflationary pressure and solve this problem?

Inflation of 2022

The COVID-19 pandemic has played a leading role in increased inflation rates in Hong Kong and the rest of the world primarily because of the disruptions in the supply chain which automatically contribute to higher consumer prices. Temporary supply or demand shocks in the oil and gasoline industries also lead to inflation. According to the Census and Statistics Department, HKSAR, Hong Kong’s underlying consumer price inflation was forecasted at 2% for 2022.

How Do Raw Materials Affect Inflation?

When there are supply chain disruptions or increased fuel prices, raw material price increases which means that businesses will now incur more costs during manufacturing. To keep up with their profits, they may transfer all the extra costs to the consumers but this comes at the price of losing customers.

Alternatively, they may choose to absorb the majority of the increased cost themselves and may produce less to keep their businesses running. This also creates ripples downstream, where a decreased supply of raw materials translates to a supply chain price increase. In one way or the other, this results in increased prices for the consumer since now their buying power has been reduced which, in turn, affects the business sales, thus reducing their total revenues.

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How Does Inflation Affect Different Businesses?

The impact of inflation on a business varies across businesses. The extent to which different businesses are affected depends on several factors such as:

1. Types of Goods And Services

Essential goods and services are consumed by consumers daily and they cannot be avoided. Therefore, such businesses that provide essential goods and services are not that much affected by the price hikes. On the other hand, non-essential and luxury products and services may be affected more by inflation.

2. Nature Of Market

Similarly, for a product or service that has many sellers, increasing prices as a result of inflation carries the risk of losing customers who can easily switch to a new seller with more affordable options. However, for products with few sellers, consumers have no other option, so they may continue to pay for the products even when prices are higher. Such businesses are less affected by such price hikes.

3. Brand Strength

When it comes to brand strength, people are willing to pay more for branded goods that they trust as compared to general goods. Thus, a business that has a strong brand strength is much less affected by inflation as compared to its competitors.

How To Solve The Inflation Problem

A few years ago, businesses would deal with inflation by increasing product costs, accepting smaller margins, and reducing production costs by compromising on quality. But as circumstances change in the post pandemic economy, how can businesses stay competitive? One of the top reasons given by exporters to boost competitiveness during a time like this includes diversifying into new overseas markets. You might gain the first-mover advantage if you have a novel product that has not been introduced to your target export destination. By carrying out thorough market research, devising a strategy to adapt a product to the local market and having a proper distribution strategy in place, you can successfully expand into new markets. In this way, you can increase your overall market share.

How DHL Express Can Help

While it is certainly not easy navigating through an inflation-hit economy, by having the right cross-border trade strategy in place, you can boost your profit margins. DHL Express is your international logistics partner of choice, here to provide you a variety of services which can be customised and bring you cost-savings for your business. With a network of over 320 aircrafts and operating in over 220 territories and countries, we are well-poised to assist in your market expansion goals. Open a business account with DHL Express to access our delivery services and customisable shipping options that can match your costs and expectations.