Multi-Decade High Inflation Creates Both Risks and Opportunities

Back at the beginning of 2021, I explored the gathering storm clouds of inflation and whether it was going to become an issue for businesses and individuals in the year ahead.

Very few were talking about it at the time, but signs were percolating that price inflation was indeed going to increase – the question was by how much. I explained in my article why this issue shouldn’t be referred to as a “black swan” like many have the tendency to. Like the COVID-19 pandemic, inflation should really be considered a “gray-rhino,” which is simply a metaphor for obvious issues that don’t receive the attention they should.

What a difference a year makes!

A topic typically far in the back of most people’s minds, inflation has become a household word once again. Everyone is noticing higher prices, especially those on low- or fixed-incomes.

And there doesn’t seem to be any end in sight…

According to the U.S. Government’s own Consumer Price Index (CPI), which is “a measure of the average change over time in the prices paid for a market basket of consumer goods and services,” February’s reading came in at 7.5%. To compare, the CPI reading in February 1982 came in at 7.6%, but this was when inflation was peaking and starting to come down.

The cause of the current inflation is a hotly debated topic with no real consensus, but the following reasons get the majority of the blame:

  • Supply chain issues caused by pent up demand. People were very cautious with their money at the onset of the pandemic, leading to one of the highest savings rates in decades. However, when people started spending again, supply chains became strained, leading to shortages and, therefore, price inflation.
  • Astronomical levels of government spending in response to COVID. Just in 2020 alone, the U.S. Federal debt jumped by 30%. The Federal Reserve helped facilitate this growth by purchasing U.S. debt and other assets at an unprecedented rate. Between March 1, 2020 and today, the Fed’s balance sheet has more than doubled from $4 trillion to just under $9 trillion. As a comparison, this number stood at around $800 billion on the eve of the 2008/09 financial crisis.

It’s interesting to see the differences of opinion when it comes to inflation. Gartner VP Dennis Gannon claims the Fed’s actions are not to blame while others like economist John Cochrane believes the COVID stimulus checks were “an immense fiscal helicopter drop. People are spending the money and driving prices up.”

Whatever its ultimate cause, inflation is affecting organizations in a myriad of ways, creating new risks or exacerbating existing ones.

One part of a risk manager’s role that often gets put on the back burner is evaluating issues in the broader world and how they impact the organization. It’s something CEOs do all the time by nature…

And while there are many articles by risk thought leaders around climate change, the pandemic, and other issues, inflation and related issues doesn’t appear to attract that much attention.

This is a little baffling since it is one of those problems that sticks its fingers into everything.

The graphic below illustrates this concept using a bicycle wheel with the hub representing inflation and spokes representing the different consequences to it.

The bottom line

When the costs of goods sold for products and services goes up but income remains constant, operating income and profit margins go down.

Now for some companies, investment income can pick up the slack, but if investment income is decreasing due to lower returns, dividends, and stock prices, then net profits are going to shrink, which is a problem.

Compounding this are salary expectations, especially among highly skilled labor you may need to run your company. According to a recent Gartner webinar on the topic of inflation, certain skill sets are commanding 20-30% base pay hikes, with some companies offering 2-years of salary as a signing bonus. Considering that, for many companies, people-related expenses are one of the largest expenses on the income statement, this kind of salary increase can be devastating to the long-term survival of the company.

Of course, the typical (reactive) approach in a situation like this is to raise prices or otherwise pass on these higher costs to your customers, but this carries the risk of those customers seeking out alternatives, or at a minimum, analyzing the cost/benefit of their relationship with your company.

Therefore, a more proactive approach is needed to find a permanent solution for inflation’s impacts on your company.

The key here is proactive. As we discuss in my comparison of traditional risk management and ERM, reactive vs. proactive is a huge difference between the two.

Inflation is not something that can be prevented, but response plans can be developed to try and reduce, or at least anticipate, its impacts to the company. These plans are similar to crisis management in that it is highly preferable to be prepared and in place when inflation or some other economic calamity rears its ugly head.

As Gartner’s Gannon says in quoting former President John F. Kennedy:

The time to fix your roof is when the sun is shining and not when the rain is coming down.”

Elaborating a little more, inflation-related measures must be a part of any company’s longer-term strategy. And by inflation-related, they mean inflation, stagflation, and deflation.

One option Gartner suggests is to identify 2-3 variables critical to your performance and then break those down to 2-3 key drivers. From here, you can build scenarios around what could possibly occur, even if it seems unlikely on the surface.

There should be two scenarios – one for economic growth and the other for recession because, as Mises Institute president Jeff Deist explains in this article, a correction in the form of a recession or depression is really the only way the pain of inflation comes to an end.

(NOTE – at the time of this article’s release, the Federal Reserve announced an interest rate increase in response to soaring inflation.)

Also, cost should not be your only consideration. Saving time or helping others save time or stress is another way companies can address the inflation nemesis. As John-David Lovelock, Distinguished VP Analyst of Gartner explains, we’re all “…a little emotionally spread thin” right now. So for example, some may prefer to pay more for something if it means certainty, or what Lovelock refers to as “sanity savings.”

An example of sanity saving that comes to my mind is when I need to buy something online and need it for an event at my son’s school. Rather than saving a few bucks on the free shipping, I am willing to pay an additional $30 dollars to make sure the items are delivered in enough time for me to check them out before taking them to the school. And that $30 also means I don’t have to take 2 hours and about $10 in gas driving around time trying to find those items in a store. Talk about saving my sanity!

Contrary to typical thoughts on this subject, inflation can also present companies with the opportunity to set themselves apart.

Steps to address the risks caused by inflation are strongly advised, but to truly stand the test of time, leading companies are always looking at what opportunities a crisis presents.

The standard haphazard approach in the current environment is to trim costs – shave 5% here or 10% there in hopes of “getting by.” However, as we know, more nimble and agile competitors can and will come in and displace companies who operate under what financial guru Garret Gunderson calls the “scarcity mindset.”

The Gartner team compares economic turmoil like high inflation to an ice-skating rink or car-racing track.

You may notice that it’s not common for someone to pull ahead on the straight runs. It’s the turns where the dynamics of a race can get really interesting, just like in this history-making Olympic speed skating event in February 2022.

In the context of this article, the turns represent inflation or general economic volatility.

Navigating these turns means thinking beyond basic cost cutting and price raising.

This current environment requires companies to look more strategically at cost versus benefit. Are there certain markets you need to exit? Or certain products that are just too much risk for too little reward? Like I explained earlier, anything that gives people more peace of mind could be considered tremendously valuable.

One example of the peace of mind product is the Hyundai Assurance Job Loss Protection Program that allows buyers to return a car in the event they lost their job. This initiative, originally launched during the 07-09 recession and re-started during COVID-19, helped the Korean manufacturer increase its market share – not because they offered the lowest price, but because they helped alleviate a huge burden on the minds of consumers.

It’s hard to say where things are going to end up, but the current inflationary environment doesn’t seem to be slowing down anytime soon, which is why proactive decisions around both the risks and opportunities is so important.

How is your company coping with or taking advantage of the current inflation impacting the world economy?

Share your thoughts on this timely topic in one of the three ways. You can leave a comment below, join the conversation on LinkedIn, or email me directly at

It can be hard to understand how inflation affects your company, much less what to do about it. If you find yourself in this situation, please consider reaching out to discuss your company’s current status and possible ways forward.

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Meet Carol Williams, SDS Founder & Lead Strategist

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This blog was launched to provide strategy and risk practitioners with a go-to resource to better guide their efforts within their companies. Thank you for bringing me and my team along to be part of your journey towards better risk management, strategic planning and execution, and overall decision-making. Happy reading!

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