New Year, Big Changes, Top Concerns
The Impact of Inflation & Consumer Price Index Spikes on Service Companies Including Facilities Maintenance Services
Contributed by Steve Weiand, Vice President of Client Relations
The annual inflation rate in the US accelerated to 7% in the last month of 2021, a new peak since June of 1982. As a result, global macro models and analysts are anticipating the Consumer Price Index CPI to be 281.21 points by the end of this year’s first quarter [1]. CPI is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services [2].
Despite the inflation surge and changes associated with it, the figures from the previous year end that will also persist during 2022 are in line with market expectations and expert forecasts. Although the inflation and CPI spike aligns with the figures that economists envisaged earlier, the impact on both businesses and consumers will still be significant.
“Regardless of how you look at it, inflation is going to be with us for a good period of time.” – Joe Brusuelas, Chief Economist at RSM (A global accounting and finance firm)
Key Effects on Businesses
The year 2022 marks the second anniversary of the unprecedented coronavirus pandemic. While the pandemic-driven challenges are gradually becoming a thing of the past, businesses are required to deal with the challenges caused by rapid inflation that stems from the economic impact of the pandemic.
“Don’t think of inflation in terms of higher prices for just one item or service, however. Inflation refers to the broad increase in prices across a sector or an industry, like the automotive or energy business—and ultimately a country’s entire economy.” – Forbes [3]
The direct impact that businesses will experience due to inflation spike include:
- Higher overhead costs
- Increase in the prices for raw materials
- Demand from employees for pay raises
- Higher operating costs
- Supply chain issues
Impact on Customers
In an inflationary environment, suppliers push price hikes through the supply due to which businesses aim to pass some of these costs on to the next buyer whether it’s another business or the final customer. [4] Inevitably, inflation impacts customers by lowering the value of their money and causing them to buy fewer goods and services than before. Similarly, B2B customers that are already familiar with high material, transportation, labor, and overhead costs for their own business, are also being effected as customers of their service partners. For instance, outsourced services such as facilities maintenance are under pressure to increase wages to retain workers and bear the brunt of increased material costs as well. These service providers increase their service rates for customers, not for their profitability but mostly for ensuring their uncompromised quality standards, maintaining low staff turnover, and keeping their customers satisfied with the scope of work and end result.
Diversified Maintenance is an outsourced service partner for janitorial and facilities maintenance solutions that offers higher year-on-year cost savings than a self-operating model for the same functions. However, the management continues to prioritize cost efficiency during persistent inflationary rise with strategies for value-driven service rate increase and optimization. The objective for price increase at Diversified Maintenance is to make necessary changes only when it is the right thing to do in order to keep up with inflation while striving to provide continuous improvement in service quality and customer service.
References
[1] Trading Economics: United States Consumer Price Index
[2] U.S. Bureau of Labor Statistics
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