Macro Trends
Weathering Inflation
October 19th, 2021
20 min read
As companies grapple with prevalent uncertainty and rising commodity prices, a few strategic tactics can make the difference.
It would be an understatement to say that the COVID-19 pandemic has undoubtedly created extensive uncertainty in the global economy. A combination of rising inflation and uneven growth has stifled economic momentum at large. While there is still enormous doubt over what the economy will look like as it emerges from a stretch of severe disruption, the outlook is just shy of being alarming.
Near-term inflation risks are being propped up by accumulated consumer demand and lingering supply shortages. Forecasts have been adjusted for a projected inflation rate of 3.7% in 2021 and 3.9% in 2022. It is worth noting that these numbers are well above the average pre-pandemic rates.
The Western Balkans have not been exempt from the global inflationary trend. However, the highest recorded inflation growth rates in the WB, as well as the regional average, fall comfortably below the average global spike. The inflation uptick in the region is a by-product of redistributed consumer spending, labor market instability, and inflationary fluctuations throughout Europe.
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As companies grapple with prevalent uncertainty and rising commodity prices, a few strategic tactics can make the difference.
Spending Control
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When executives find themselves in volatile situations they often resort to making decisions which may compromise the company’s long-term interest. Spending visibility and differentiation is the key to avoiding such pitfalls. During an inflationary period, it is critical for companies to have a clear picture of their expenses and understand the full impact of their overhead. This kind of transparency will enable executives to distinguish between strategic costs and non-critical costs.
​Selective cost-saving is an essential tool in navigating a company through uncertain times and a powerful booster of competitive advantage in the long term.
Cross-Functional Collaboration
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Another approach to tackling cost inefficiencies involves enhancing cross-functional collaboration. Executives can simultaneously trim down costs and increase operational efficiency simply by detecting opportunities for the facilitation of new synergies within their existing organization. In doing this, they can increase precision in targeting spending drivers across categories and in isolating unjustifiable or avoidable costs.
Cross-functional collaboration is particularly useful in times of economic disruption because it adequately positions companies to explore new options and possibilities to update their strategy and maximize shareholder value.
Automation
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Labor shortages and higher wages spurred by economic turmoil can create a strain on the financial health of a company. That is why looming inflation is inducing industry leaders to take a second look at their practices and search for new ways to streamline their work. Automation is increasingly becoming the
go-to lightning rod of the economic storm caused by the global health crisis.
Companies that successfully accomplish digital transformation are able to leverage technology to resist inflationary stress.
Proactive companies have taken significant steps to withstand inflation and strengthen their competitive advantage. These strategies have enabled them to build more resilient and cost-effective operations which can weather incredible volatility. Such tactics place the best performers in an opportune position to leapfrog their more sedentary competitors in post-crisis environment.
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