How Does Inflation Affect Companies?

All companies are affected by inflation. Non-essential companies get crushed and essential thrive during inflation. Though the definition of an "essential company" may not be obvious. For example during a recession alcohol consumption increases. So the customers obviously see alcohol as an essential product to cope with hard times.

Will companies increase salary due to inflation?

Companies are adjusting salaries for inflation only as a last resort, which is important as you'll see later. In an inflationary environment, the first things that go up in price are raw resources. The company has to pay more for them, otherwise, they have no more products to sell and the only alternative is to close down the business. So they pay more. And to keep their business afloat, they need to increase the price of their products. If they don't then they are no longer profitable. And no one wants to work for free. So now the customer has to pay more.

Customers are also employees in this and thousands of other businesses. So now they see their salary doesn't cover their costs as it used to. So they ask for a raise. And now the company pays them more or they quit and find another better paying job. Companies will always try to pay the least amount possible. Barely above the threshold where employees would quit their job. And employees are trying to get as much as possible for their work. If they don't get it in one company then they're switching to another. The salary raise process takes some time and in a rising inflation environment that means while employees are waiting, they have lower purchasing power. So the entire economy shrinks proportionately.

Companies That Thrive During Inflation

Not all parts of the economy shrink equally. For example, if purchasing power is down, people might not get that new TV but they still have to eat just the same. So inflation-proof companies that keep their share of purchasing power from the customer are the companies that thrive during inflation. Because even if they raise the product prices to catch up with the inflation, their sales do not fall. So in currency terms, they are getting more and more money. If they have loans, the situation is even better for them. Because the loan stays the same while they are getting more and more revenue as the inflation is going up. If those inflation-protected companies have assets like the land or real estate then those things will keep their value even if the value of the currency goes into the ground. A building is a building regardless of the currency exchange.

Also, there is digital real estate that holds its value as well. Yes, paid ads will go up in price as inflation continues. But companies with enough foresight invest in digital content and free ads (also known as free SEO traffic). And they do it before their cash reserves inflate away. So they invest in content creators, as well as resources that help them find undiscovered SEO keywords. One such resource can be found here: https://ProgrammerMoney.com

Why Does Inflation Hurt Growth Companies?

Effects of inflation on a company that is growing might be even more pronounced than with a regular company. Growth companies are usually backed by investments. And those investments are worth less and less as the inflation continues. At the same time, their costs continue to increase as the price of resources and salaries grows higher and higher. So effectively their investment is shrinking in real purchasing power.

The second reason is that growth companies haven't really polished their profitability streams. They are mostly focused on getting more customers rather than optimizing for profits. So they are in a tough position where they haven't really found an optimal way to monetize their business. But at the same time, they need to increase their prices which makes their value proposition less and less appealing. And this in turn hinders their growth. The plainest explanation is that it's hard to achieve company growth in a shrinking economy.

Inflation Proof Businesses

Since there will always be periodic inflation periods and recessions, some interesting questions pop up. What businesses do well during inflation and market downturns? And is there any point in starting a business that will fail its owners the moment they need it the most? And that is precisely the moment when the times get hard.

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ProgrammerMoney.com is a company that specializes in finding SEO keywords that no one else can find. Not even the keyword tools. This enables the company and its clients to get the search traffic that no one else is using, and the competition is low or non-existent.

This release was published on openPR.