The cost of living in the UK has increased over the years, and inflation has affected many aspects of our lives. This article shows how inflation impacts manufacturing. Inflation occurs when the prices of goods and services rise. When prices rise during inflation, there will be a decline in purchasing power. In most cases, inflation is viewed negatively as it affects everyone in the economy. During inflation, prices of basic commodities like food, fuel, and basic services will rise. It will harm society.
Inflation can occur in nearly every good and service. It can include food, jewelry, cosmetics, utilities, healthcare, automobiles, and others. Inflation can be a bad thing because businesses might be forced to raise the prices of their goods and this will make the businesses lose their customers. For some industries, inflation is a good thing because consumers will be forced to use the goods and services provided because they do not have any other option.
What causes inflation?
Growing economy: economies around the world are growing fast every day. As a business cycle expands, the consumers earn more money. They hence feel the need to increase their spending power. It in turn makes businesses hike the prices of their goods and services.
Excess money supply: an economy will have more money when the government prints out more than needed money. The sole reason the government prints out more money is to pay any debts the country might have. When there is money oversupply, the economy will experience hyperinflation.
Wage rises: when consumers get wages to increase, they have a higher purchase power. It can lead manufacturing companies to sell their goods and services to consumers at a higher price resulting in wage inflation
Exchange rates: when the exchange rates change, inflation might be experienced. The change in the value of money affects many things in the economy. A country’s exports and imports will also affect inflation.
Government tax and regulation: when the government places taxes and regulations, the economy will experience some inflation. If the government raises the customs duties other countries pay, there will be Inflation as companies will increase the prices of goods and services they offer.
Natural disasters: when a country faces a natural disaster, the distribution of goods and services is usually affected. It will result either in a delay of goods in the market or a scarcity of goods and services. When the supply is affected, business owners will increase the prices of their goods and services. It leads to inflation. Consumers have to buy essential goods and services. They will buy them at an increased price and have no option around it.
Production cartels: in every economy, you will find production cartels. Production cartels usually are the producers of specific goods in the economy. They control the production and distribution of goods. This can lead to inflation. Production cartels control the prices of goods. If they increase the prices of goods, consumers have no option but to comply and pay the prices stated.
Government policies: government policies have an effect on inflation in a country. The government might decide to put in place policies, which will make the demand for goods high. The government might decide to reduce the taxes making consumers get more money to purchase goods and services. Companies in turn can decide to increase the prices of the goods and services available leading to inflation.
In the UK, the inflation rate is high. There has been a 9.9% increase in the inflation rate since published. The inflation rates are soaring higher every day. It makes the cost of living higher. Why is there high inflation in the UK? The ongoing instability in Russia is UK’s inflation largest contributor. Other reasons include
- Increased food prices caused by the war in Ukraine. Grain production has reduced and the costs of grain have increased.
- The prices of oil and gas have gone up. It leads to an increase in energy bills. Due to the continuing war, the prices might even go higher in the next few months.
- The war I Russia and Ukraine has affected many things. Petrol and diesel have not been spared. The prices of petrol and diesel have gone up and are expected to remain higher even after the war ends.
- The cost of raw materials used to manufacture goods has incredibly gone high. When the cost of raw materials goes high, the production costs will also go higher. The product will be sold at a relatively high price than the normal prices. Raw materials used in making household goods and furniture have gone up making the final product expensive. The hospitality sector has also been affected.
- There is Inflation in the UK has made the cost of used cars rise
- High-interest rates have made homeowners pay more for their mortgages. It eventually leads to homeowners spending a lot of money while purchasing houses.
The citizens of the UK get wages that cannot sustain them during the high inflation era. Some of the employees get pay raises but raising prices for goods and services makes pay increases not effective.
Manufacturers and manufacturing industries have felt the full wrath of inflation. Inflation is on the rise and consumers all over the world are feeling the effects. Manufacturing companies are having a difficult time. Manufacturers are facing high operating costs, and irregular buying patterns from consumers and they are having a hard time trying to meet the high demands of goods and services from the consumers.
Inflation has affected manufacturers all over the world. What are some of the impacts of inflation on manufacturing?
- Gas and fuel prices: inflation has led to an increase in gas prices all over the world. The war in Ukraine and Russia disrupted many things. The two countries were one of the world’s main suppliers of fuel. During the war, the two countries stopped supplying fuel to the rest of the world. It led to a low supply of fuel and gas. There was a huge demand for gas but the supply was not there. It led to the prices of gas and fuel going up leading to inflation. Manufacturers have had a hard time trying to transport goods because they need gas or fuel to do this. It has had a huge impact on most manufacturers around the world.
- Cost of labor: inflation has led to an increase in the cost of living. As the cost of living increases, workers also need their wages increased to live comfortably. Manufacturers are facing a hard time with the workers. Workers are demanding an increase in their wages. If manufacturing companies do not increase the employees’ wages, no work will be done. It means that the production of goods and services will have to stop if there are no employees. Manufacturing companies have thus opted to increase the employees’ wages to enable goods and services to be produced.
- Supply chain disruption: the disruption in the supply chain will make it hard for manufacturers to obtain goods. If the goods to be supplied are scarce, the demand for such goods will increase. The increase in demand leads to an increase in the prices of the goods. Supply chain disruption can be caused by:
- Natural disasters. For example, when a hurricane hits an area, the transport system might be disrupted. The roads might be destroyed making it hard for manufacturers to access any raw materials. There might be power outages, which can also affect the supply chain. Floods are natural disasters that can cause supply chain disruption.
- Labor shortages: can happen when the workers go on a strike because the wages they are being paid are low. It will lead to a supply chain disruption since the workforce available will not be able to cater to all the supply needs of manufacturers. There will be labor shortages if there is war. The workers will flee for their lives during the war. If they were the ones doing the supply, it will be been delayed. There will be s shortage of labor.
- Reduction in supplies for production: this affects the supply chain. The government might put rules and policies on specific raw materials. The supplies might not be available due to climate change. The raw materials might be depleted. All these factors can lead to supply chain disruption since manufacturers will be forced to produce fewer goods and use fewer supplies during production.
Due to the high inflation rates, manufacturers are forced to do some adjustments. Shipping fees have increased. It makes the manufacturers increase the prices of the goods they produce. It is because producing the goods during inflation has become expensive. Before changing the prices of goods and services, manufacturers need to know why inflation is happening. Making the right and smart decisions will make manufacturers remain relevant and in business.
Manufacturers should be careful with the decisions they make. They should be able to remain in business and still make profits. What can manufacturers do to limit the impacts of inflation?
- Increase productivity: increasing productivity does not mean increasing the workforce of the manufacturing company. The company can decide to maintain a low number of employees. Manufacturing companies can boost their employees’ productivity by offering them bonuses from time to time. Employees will be more motivated when they get benefits and work will be done efficiently.
- Adjustments in prices: During inflation, the customers have less money compared to the prices of goods available in the market. If a manufacturer is to maintain high-priced goods and services, the consumer will not be able to purchase them. A manufacturer should therefore know the consumers’ willing buying power. If it is reasonable, the manufacturer can sell the goods and services at that price.
- Use new technology: technology can help manufactures to reduce production costs. It helps manufacturers reduce their workforce and get more goods and services produced within a shorter period.
- Reduce material costs: a manufacturer should look for an alternative solution. Looking for a cheaper supplier with quality material will help a manufacturer a big deal. The quality of the materials should come first as the manufacturer is choosing a supplier.
- Packaging and product presentation: the more words in a package the more costly it will be. Manufacturers should consider changing the packaging methods. If possible, look for a less expensive packaging method. Use fewer words in your packages. Consider changing the size of your packages to smaller ones.
- Control price increase: as a manufacturer, you do not have to change immediately the prices of your goods and services. Take your time to study the inflation rates. Find out why inflation is happening and what you can do about it. Take into consideration the costs you incurred during the transportation and manufacturing of the goods. Once all the factors have been considered, a manufacturer can either change the prices or not.
- Do not take loans: during inflation, banks and other financial institutions like to offer loans to manufacturers. Banks and financial institutions usually have good offers to manufacturing companies and try to lure them into taking loans. As a manufacturer, do not rush. Go back to the drawing table and ask yourself if you need to take the loan. Taking the loan might help your company but repaying it during inflation will be harder. It is because the amount taken might not match the amount received from doing business. The banks will want their loan repaid whether you made a profit or loss. It is wise to do thorough calculations before taking a loan. It will either build or break your business.
You can protect yourself from inflation.
If you work in manufacturing, you need to protect yourself from inflation. There are ways to do so, such as by investing in stocks and bonds. However, there are also other things you can do to help keep up with inflation. One thing you can do is to save money. Another option is to invest in real estate. With inflation still there, manufacturers need to be careful about how they trade. A manufacturer needs to be alert and make favorable decisions. Remember to keep a balance in everything you do.