How small businesses can cope with 2019’s consumer price inflation


Consumer price inflation means the rate at which the prices of goods and services bought by households rises or falls, which is estimated by using price indices.

Consumer price indices are used by the government as a means of indicating how the UK economy is performing. The indices affect interest rates, wages, benefits, pensions, tax allowances, and also show the impact of inflation on family budgets.

It’s common to measure inflation against a 12-month inflation rate, which compares prices for the latest month against the same month from last year. The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month rate stood at 1.8% in February 2019. It was found that prices are rising for food, alcohol and tobacco, among other recreational goods, producing the largest upward contributions to change in the rate.

Rises in inflation can be especially painful for small businesses, given that there is a general increase in prices for goods and services. Staying aware of inflation and anticipating its effect on your business is key.

Inflation isn’t ‘good’ or ‘bad’

When we hear the word ‘inflation’, we instantly think of skyrocketing prices, fewer customers, and failing businesses. However, it’s important to remember that inflation isn’t necessarily ‘good’ or ‘bad’. Whilst inflation could mean that some businesses must raise their prices and lose customers, it can benefit others and spur activity in their industry.

For example, inflation in real estate means that home prices are higher, new construction becomes more expensive, and demanding customers have fewer options. However, real estate agents benefit hugely since higher sale prices equal higher earnings from commission. It is also worth remembering that inflation can signal a growing and flourishing economy.

What can I do before raising prices?

Although inflation means the purchasing power of the pound has decreased, it doesn’t necessarily mean that you need to raise your prices. Consider how you can maintain the same levels of productivity with less staff. Try to implement new technology, reducing your labour costs through automation where possible.

Not only will technology cut costs, but it’ll help your small business to stay competitive and innovative. Find efficiencies in your business wherever you can. If you can get essential materials at a reduced cost by switching supplier, try them out.

Be cautious about cutting too many corners, however, as this may lessen the value of your business more than inflation. For example, a hair salon may save money by offering clients tea and coffee instead of wine, but shouldn’t consider operating without hairdresser insurance. Never compromise on essential costs!

How to raise prices effectively

If cost-cutting measures aren’t enough for your small business to survive, raising your prices is inevitable. The best way to do this is by staying transparent with your customers, give them notice of the changes and explain your reasons. Try to find a way to add value to your products or services since the cost of them will be increasing.