Data and Insights: Business and Inflation 2023

Businesses are vulnerable to fluctuations in the financial markets, and inflation is every business owner’s worst nightmare. Since May 2022, small businesses have been hit hard and business owners are anxious about the future. In 2023, we begin the year with falling inflation rates. However, inflationary costs are still affecting most industries, even ones that are recession proof.

Whether or not we’ll face a full-blown recession is debatable but what we do know is that we must take some steps to adjust to the impact of inflation on business. To manage inflation’s impact on our businesses, we must first understand how the cycle works and how it will affect the small business market. Your business insurance should also be reviewed if not rewritten by a new carrier to reflect inflationary costs to rebuild, replace or repair business property and equipment.

Here are some useful insights and tips on how to be fiscally savvy during this rough spell and some positive data about inflation rates.

On This Page

• 

  What Is Inflation?

• 

  Are Inflation Rates Dropping in 2023?

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  Strategies for Businesses 2023 - 2024

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  How Inflation Impacts Business Insurance

• 

  What Is Insurance Inflation Protection?

• 

  Business and Inflation FAQs

What Is Inflation?

When prices go up on nearly all products and services and consumers stop buying as much of those products and services, we call it inflation. Inflation happens all the time, even when the economy is in good shape. However, when it is too high, it negatively affects both consumers and businesses. For Americans, inflation began during the supply shortages during the COVID-19 outbreak and has only deepened due to other factors.

Inflation won’t necessarily end at some fixed point, because inflation is either high or low but ever present. During periods of high inflation, like now, most small businesses tighten their purse strings and do not focus on growth as the highest priority until the cycle turns again.

Your business insurance should also be reviewed if not rewritten by a new carrier to reflect inflationary costs to rebuild, replace or repair business property and equipment.

A recession, on the other hand, is a market decline of all business activity. We still have strong employment numbers, so we are not quite in the thick of a recession but some economists say that we are in a “mild recession” while others say that we will not go into a recession.

Forecasting economic swings is challenging. Below are some stats that may help you decide how you should handle your annual budget for 2023.

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Are Inflation Rates Dropping in 2023?

As you can see in the graph below, June 2022 peaked as the most inflationary month in 2022, but rates have been steadily dropping since then. It’s expected that November and December’s rates fell slightly too, and they will continue to fall in 2023.

Date source: Trading Economics

Take a look below at what inflation rates have looked like historically. Note that 2022 was the peak of inflation, but the data above shows a more granular look at 2022, which shows that inflation rates have been decreasing each month since June 2022.

Strategies for Businesses 2023 - 2024

The folks at Goldman Sachs have predicted that the core price consumption expenditures (PCE) index will fall to 2.9% by the end of 2022. In November 2022 it was as high as 5.9%. This is a sign that the economy is on track to bounce back from inflation.

The reason why many economists are hopeful about the economy in the new year is because inflation has been triggered by very specific factors: energy and cars. However, the shortage of semiconductors due to COVID is easing up and the war in Ukraine has an end in sight. Fed tightening of interest rates will cool off too.

Some businesses cut costs, employees and even holiday parties to battle inflation. However, some businesses have taken out loans, in order to expand and grow. The latter approach is what Deloitte calls The Blue Skies Approach. For this strategy, Deloitte prescribes this approach:

• Go long on debt to invest in foundational capabilities and growth-oriented M&A.
• Increase enterprise resiliency by diversifying supply chains.

While a merger and acquisition may not be in your business’s horizon, you can reasonably look to expansion versus tightening of budgets with the possibility of layoffs. If you have been cutting expenses and trying to stay small, you can begin to ease up a bit, if not push forward at full capacity.

Inflation won’t necessarily end at some fixed point, because inflation is either high or low but ever present.

2 Strategies in Managing High Inflation

All we know for certain is that currently we have high inflation, which is curbing economic growth due to less consumer spending. However, due to mostly positive forecasts based on current trends, you have two choice for how you want to manage your business until we see inflation rates drop:

1. Stay small and lean:
1. Cut all extras.
2. Spend more time marketing your business.
3. Invest in and outside your company to keep up with inflation.
2. Focus on growth:
1. Increase revenue to keep up with inflation.
2. Spend more time marketing your business.
3. Revisit pricing, either increasing or decreasing depending on which will increase revenue.
4. Invest in tools that can improve your company’s efficiency.
5. Take out business loans at the lowest rate you can find and pour the money back into your business.

How Inflation Impacts Business Insurance

If you noticed that your premium went up at renewal, that’s because insurance companies adjust rates annually to keep up with inflation. Even still, policyholders may not have the coverage necessary to pay for the higher prices on parts and labor due to inflation rates. Say you own the commercial property you conduct business in. If it suffers fire damage, it will cost more to repair the building during high inflation than it would during periods of low inflation. Are your limits high enough today?

Even if your premiums went up, it’s a good idea to do an annual review of your policy to make sure that it is buffered against inflation. It’s an even better idea to compare rates to see who will give you the most protection at the lowest price.

What Is Insurance Inflation Protection?

Insurance Inflation Protection can be added to a commercial insurance policy to increase the price and value of coverage at specified times during the policy’s term to ensure that your policy’s value is not diminished due to inflation. After all, what’s the point of having insurance if the payout is less than it takes to rebuild your business?

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Some businesses cut costs to battle inflation while others take out loans and reinvest in their company, in order to expand and grow.

Whether you decide to cut costs until rates drop even further or if you want to expand your business while rates continue to drop, you’ll need to re-evaluate your commercial insurance policy to make sure you’re sufficiently covered in case you need to file a claim. Why not compare rates while you’re at it, to save a little money? Just enter your zip code below and answer a few questions so that an insurance agent can contact you with accurately priced quotes to compare for free.