Inflation: Expert Analysis from Economist Ben Herzon
Today’s turbulent economy is straining finances for business owners across industries; affecting every field, every leader and every employee. In navigating these challenges, many distributors have been forced to make changes, either raising prices, lowering spending, or risk absorbing additional costs.
Want to hear this as a podcast?
Listen to episode 4 of our podcast "Distributor Dialogues" to hear the full conversation!
Many business owners have adopted technological tools to streamline business functions and cut down hours of labor, which saves time and money. Communication softwares like Prokeep allow distributors to communicate with customers and make sales within seconds.
But trouble is still brewing within the construction industry. We recently spoke to an Economist on inflation, and were able to shed some light on this never-before-seen economic climate. Ben Herzon is a senior US Economist with S&P Global Market Intelligence and has been working with this particular group for 24 years. Ben’s role includes forecasting the economy, which has proved even more difficult since COVID-19.
In fact, when asked why inflation is so much different today, Ben answered, “one word… COVID.”
How we reached record-breaking inflation
Inflation began its momentum with COVID-19, which led to significant changes in the economy, Ben told us. A large torrent of people left the workforce, many never to return, causing a drastic decrease in labor. Following COVID-19 society shifted nearly entirely away from services, like restaurants and entertainment, and towards goods. This created an incredible demand for tangible goods, putting pressure on supply chains.
"So the provision of services and goods require completely different technologies, different ways to produce those items, “Ben explained. “So there's never been anything like this, this largest shift, in the composition of what's being produced and consumed ever in the US economy.”
The heavy government restrictions worldwide also made supplies difficult to bring to the United States, straining the supply chain, which was already suffering from a loss in labor. This increase in demand paired with a lack of supply created our heavy inflation.
Since COVID-19 the workforce is still in short supply. Many individuals were nearing retirement and when the pandemic began, decided to retire early. “it's not just a matter of people dropping out and not coming back in,” Ben said. “A lot of people are having, are still having, trouble finding childcare and can't get back into the labor force for that reason.”
World Sanctions & Supply Chain
The worldwide restriction of materials has greatly aggravated our supply chain. Ben shared with us that China recently experienced another round of lockdowns, further dwindling necessary goods and aggravating inflation.
The Russian invasion of Ukraine, and the following sanctions on Russia has limited our supplies of grains and oil. “It's been a perfect storm of conditions that have led to the inflation that we're in now.” Ben stated. “And as I was saying, it would be nice if supply would catch up to demand, but it hasn't happened.”
While what follows is uncertain, there are a few possibilities. “The best outcome is that the economy experiences a period of slow growth over a period during which supply catches up with demand.” Ben said. “In our official forecast, that’s what happens. The economy slows down, unemployment rises a little bit, but we avoid a major recession.” He goes on to explain that should this not happen, and supply does not catch up to demand, the Federal Reserve will need to significantly raise interest rates, subsequently fueling a recession.
As distributors brace themselves for an uncertain future, optimizing efficiency will help bring down unnecessary costs and hours of labor. Prokeep text enables a branch’s main phone line, allowing distributors to text customers and employees directly. This breaks down silos and lets orders be placed in seconds. While business owners may not be able to influence this turbulent economy, they are able to take steps to prevent their businesses.
To learn more about inflation, what it is, how we got here, and what our future may look like, download our full report. We did the research so you can be informed!