Inflation in Australia just took an unexpected turn, jumping higher than economists predicted. This could mean big changes for the way you shop and the brands you choose. We dive into the details with Jordan Taylor-Bartels, CEO of Prophet, to explore what this means for consumers and businesses alike.
“Undoubtedly, CPI and many other important factors that help shape CPI, have (or are) a critical impact on consumer behaviour. If household budgets change, priorities shift and behaviour moves towards or away from the objective, forming a carryover effect that should impact all organisation decision making. Brands are a bi-product of consumer demand – no matter which way it flows – and having consumers either more incentivised (and excited) to spend household budgets makes certain brands more effective over others.
“Businesses in affected sectors may need to adjust pricing strategies, review Gross Profit and explore efficiencies to manage the increased operational costs. Policymakers should consider these inflationary trends in future economic planning and support measures to mitigate the impact on vulnerable populations. The lack of predictive tools underscores the need for better forecasting mechanisms to prepare for and manage these changes effectively. CPI is one of them, but there are many more.”
How brands can stay afloat
Michael Haynes, SME Business Growth Specialist, told Dynamic Business that for B2B professional service companies like Accounting, IT, and Law firms to thrive in competitive and uncertain times, they need to strengthen their engagement with decision-makers. “It is imperative that firms have a current and in-depth understanding of their clients’ priorities, objectives and key challenges. Effective ways to gain these decision maker insights including Depth Interviews, Strategic Client Workshops and Decision-Maker Forums.
“Armed with these insights, the focus of B2B professional service firms’ can then be on executing a Go to Market Strategy (not simply a Marketing Plan) to provide the decision makers within their clients and prospects with “AIR”—Advice, Insights and Recommendations to empower them to address their priorities and challenges. This is imperative as the latest research on professional service clients has revealed that EXPERTISE is the number one characteristic that buyers are seeking from Professional Service Firms.”
Inflationary pressures are squeezing both brands and consumers. Here’s how brands can navigate these choppy waters:
- Streamline & Save: Optimize operations, negotiate bulk purchases, and leverage automation to reduce expenses.
- Pricing Strategies: Implement dynamic pricing, offer tiered options, and emphasize value to justify adjustments.
- Product Power: Develop innovative offerings or enhance existing ones to stand out and potentially command higher prices.
- Transparency Matters: Clearly communicate price changes while highlighting external factors.
- Promotions with a Purpose: Utilize targeted promotions and loyalty programs to retain customers without sacrificing margins.
- Working Together: Collaborate with suppliers on cost-sharing initiatives and flexible contracts.
- More Than Products: Explore new revenue streams like subscriptions or complementary products to diversify income.
- Customer Centricity: Invest in exceptional service and customer engagement to build loyalty and justify potential price increases.
- Financial Fitness: Utilize hedging strategies and optimize cash flow management to weather the storm.
- Sustainable Savings: Implement energy-efficient practices and waste reduction programs to cut costs and boost sustainability.
- Empowering Employees: Invest in employee training and consider flexible work arrangements to improve productivity and reduce costs.
Inflation in Australia has surged to its highest level in five months, likely delaying any anticipated interest rate cuts and potentially paving the way for another rate increase. According to the latest data from the Australian Bureau of Statistics (ABS), the consumer price index (CPI) for the 12 months to April rose to 3.6 percent, surpassing market expectations of a fall to 3.4 percent. The annual inflation rate had been at 3.5 percent for the 12 months to March, slightly lower than the current 3.6 percent. The last instance of inflation exceeding this rate was in November when the CPI was at 4.3 percent.
ABS head of prices statistics, Michelle Marquardt, noted that inflation has been relatively stable over the past five months, with the recent figures marking the second consecutive month of a slight increase. “Annual inflation increased to 3.6 percent this month, up from 3.5 percent in March,” she said.
Food prices also contributed notably, with fruit and vegetable prices experiencing their highest increase since last April. Marquardt highlighted that when excluding volatile items such as automotive fuel, fruit, vegetables, and holiday travel, the CPI was steady. “Excluding these volatile items, the annual rise to April was steady at 4.1 percent,” she explained.
Meanwhile, the Reserve Bank of Australia (RBA) is set to announce its next interest rate decision on June 18. Although the RBA typically prioritizes quarterly inflation figures, the recent monthly data may have postponed any chance of a rate cut. Governor Michele Bullock has warned that the bank could increase the cash rate for a 14th time if inflation continues to exceed expectations. “We don’t think we necessarily have to tighten again, but we can’t rule it out. If we have to, we will,” she stated.
Anneke Thompson, Chief Economist, CreditorWatch said: “ A flat CPI (excluding volatile items) result is not the news Australian small businesses were hoping to hear today. The fight against inflation is still far from over, with the last stubborn categories – housing, fuel, electricity, health, education and financial and insurance services – proving difficult to get under-pricing control. Record high population growth is likely a contributing factor here, and the hope from here is that moderating incoming overseas migration helps reduce price increases on these essential services.
“Despite this flat monthly inflation result, it is still unlikely that the RBA will find cause to increase the cash rate, given that price rises for traceable and discretionary goods have moderated dramatically from their peaks. What it does mean, however, is that the cash rate will be stuck at this peak level until the RBA gets a good indication that services inflation is falling. Given population growth impacts are still to be worked through, this is unlikely to happen until early 2025.”
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