By D.A. Reed, WKTV Contributing Writer

With prices continuing to skyrocket, Michigan residents and business owners search for the reason behind the perpetual inflation, and when it might end.

Global issue as well

Many economists and local business leaders say increasing costs for businesses are the driving force behind rising prices. And that continuing inflation is a concern not only statewide, but nationally and globally as well.

Consumer prices up 9.1 percent over year end June 2022 (largest in 40 years)

As the world emerges from the emergency status of the COVID-19 pandemic, business owners and consumers are fighting against ongoing residual effects, namely inflation. Due to supply issues during the pandemic and current labor shortages, prices for everyday goods have skyrocketed, with consumer prices up 9.1 percent over year end June 2022. U.S. Bureau of Labor Statistics

Exercise patience

Despite the economic concern, Keith Morgan, president and CEO of the Wyoming-Kentwood Chamber of Commerce, advises community members to, “Temper your decisions…exercise patience. It’s not as bad as they make it seem…and it’s not as good as some people think it may be.”

In regard to business owners, “The biggest impact right now that businesses need to be aware of, the key is, preparation,” said Morgan to WKTV. Most small businesses are not prepared for crises such as a pandemic. “A business is going to typically have a 6-month runway (also known as a reserve) if they are in a good position…some may have 12 months. Very few are going to have 24 months.”

With the pandemic lasting longer than businesses anticipated, several owners found themselves floundering.

“What a lot of people are experiencing,” continued Morgan, “is that they are having to pivot. They are forced to reevaluate their paradigm. The businesses that have done well are the ones that are finding ways to provide different services or provide different products…and finding avenues to be more efficient.”

Government help available

Morgan also revealed that government help is available for businesses, but that many organizations are hesitant to take advantage of different funds that are available, such as ARPA (American Rescue Plan Act) funds, due to not having information about those advantages.

Local Chamber of Commerce networks offer professional advisors and relationships business owners can take advantage of, and that can help them understand that information so they can make better decisions.

Some aspects of the inflation crisis, however, cannot be avoided.

Labor shortages

Labor shortages have had a large bearing on inflation. With fewer workers available for businesses to draw on, they are finding the need to offer incentives, such as higher pay rates and benefits. Something that will make a “significant difference” in employer expenses, Morgan said.

Tim Mroz, senior vice president of Community Development for The Right Place, agrees that one of the prevailing struggles is “the ability for employers to stay competitive with wages, and employees to keep up with the cost of living.”

Offering such incentives, however, increases cost to the employer. “Companies just can’t eat that total cost,” Morgan said. “So that cost has to be passed on to the consumer who is buying your service or product.”

The company that offers that service or product now must raise that rate to be able to account for the additional cost to their business. Add in meeting profit margins and expectations from investors, and that cost increases exponentially.

Supply chain issues

Supply chain issues are also a large factor of inflation.

“The good news is that we are seeing progress,” Mroz continued. “I think we’ve gotten beyond the emergency situation we were in a year ago during COVID. The supply chain issues we’re seeing today are a little more targeted at certain materials.”

Those manufacturers who are still experiencing supply issues, however, are now finding the problem compounded by rising prices when they can acquire those materials.

“Steel prices are still a challenge, both for construction steel and coiled steel.” At local steel manufacturers, Mroz said, “There is very little inventory. What they do have they are moving as fast as possible.

“Since 2020 to current quarter, construction prices have just about doubled. If it’s not under control soon, we’re going to start seeing pullbacks in the construction and development industry. That’s concerning because we need housing.”

Jason Parsons, senior construction project manager for Habitat for Humanity of Kent County, told WKTV that “All of the materials I have delivered to site, they are all adding a fuel surcharge onto the bill, which didn’t used to be there. We are getting regular cost increases on windows, siding, roofing.”

Parsons says it is not any one thing causing the increase.

“I think it’s the supply chain problems, it’s the delivery chain and trucking costs, manufacturers are having a difficult time keeping enough labor. They aren’t producing as much as they were, so they are charging more for what they are producing.”

Compounding the problems brought on by a lack in available materials is a shortage of truck drivers. That shortage has cost site workers delays as they wait for materials to be delivered.

“It’s a synergistic type of system that one thing doesn’t just affect one other piece,” Morgan explained. “One thing can affect 17 other pieces down the road, and they all work together.”

A social aspect also comes into play due to a growing mentality that there is no better time to raise rates because people are expecting it. Morgan mentioned the current gas market, observing that prices are unlikely to decrease back to yesterday’s normal, even if cost improves for the buyer because “(consumers) are used to paying it, and willing to pay it, and are paying it,” thus increasing the buyer’s profit margin.

These thoughts are supported by a current podcast, Trend Talks with ITR Economics, specifically episodes from “The Consumer, Interest Rates, and Gas Prices” with Alan Beaulieu, March 18, 2022, and “Pricing at the Peak” with Connor Lokar, January 14, 2022.

Will consumers see a decrease in prices?

Morgan says yes, but it will take time.

“Inflation will decrease due to what the market can bear,” he explained. “Prices are based off of what people will buy.”

Parsons agreed.

“It’s all supply and demand. If supply increases and demand goes down, the prices will come down. They have to.”

Federal Reserve taking action

The Federal Reserve has already taken action by purposely increasing their rates.

“The Federal Reserve has the most impact on the value of a dollar,” Morgan said. “They can change the numbers, which will tighten up the financial market and the base has to follow suit. If they (Federal Reserve) tighten up the economy, and people aren’t able to go out and get as many loans, they can’t do as many things, then that will typically drive the prices back down because you have a surplus in the market.”

No easy fix

Even so, Morgan believes it will be a minimum of a year to bring the economy back down from inflation, with economists saying it could be as long as 18 to 24 months. But Morgan cautions that a lot can happen in 24 months, and to “temper your plans and expectations. There is really no easy fix.”

Both Morgan and Mroz agree that Michigan is not alone in its struggles.

A global problem

“This isn’t a Michigan-specific issue,” Mroz said. “It’s a national issue, I would argue that it’s even an international issue. Everybody is dealing with this right now, with global finance as connected as it is.”

Close to retirement?

When asked how the average consumer can prepare or help themselves right now, Morgan said each individual and family situation is different and dependent upon their needs but did suggest that those close to retirement pull their money from the market now and put that money in a savings account with very low risk.

 “Economists are saying that, unless you have a 2-year runway where you can stay in the market without making any change, you need to get your money in a place where you’re not going to earn much interest, but at least you’re not going to lose much either, because the markets have trended downward,” Morgan said.

Despite the difficulties many individuals and business owners face, Morgan offers hope.

“We are not in an economy where we don’t have money,” Morgan explained. “We are experiencing inflation and it’s a concern, but it’s not such a concern to the extent that we are going to change our buying habits or change our lifestyle.”