Inflation analysis in the Australian market; How will this impact your business?

It’s worthwhile analysing the status of inflation in the economy. It is also important to understand and interpret the impact of inflation to your business (source https://www.abc.net.au/news/2021-05-26 )

This article summarises important areas to consider; with reference to a recent article published on the analysis of inflation in the Australian economy. This analysis mainly covers the price inflation of essential goods, discretionary goods and impact towards residual income.

Inflation rate effect on essential goods and discretionary goods

From 2005 to 2020, the prices of essential goods have inflated with a hike of 61.4%. Major contributor for this being the increased demand for essential goods during the global pandemic. It is also confirmed by research papers that not only the price factor has increased but also the consumption has increased significantly. This has increased the demand for essential goods. Considering discretionary goods during the same period, the increase is 38.6%. Major contributor for the discretionary items price increase is due to tobacco (tobacco is considered as a discretionary good); price increase in other goods excluding tobacco is closer to 18%. This is a significant inflation gap between the essential and discretionary items. Demand for essential goods has been increased as result of the expansion/increase in the following domains in priority order;

– Education

– Health

– Household

How this can be interpreted on its impact to your business

This significant price variance may have a dramatic impact on low-income households. They will cut down expenditure on other basic requirements (cloths, accommodation etc). They will continue to consume essential goods at the prevailing price. However, there will be significant price drop in non-essentials and the goods/services those deemed as luxury items. For your business it is important to maintain a healthy pricing formula. If you are not in the essential goods industry; you need to revisit your pricing strategy and eliminate unnecessary costs and overheads. At the same time, if you are in the essential goods related industry; increasing the price will not be the best decision you should take this moment. You should have a fair understanding of the demand for your specific product and its forecasted demand.

We at SandS currently performing a deep-dive analysis to support some of our existing clients, based on fluctuations in industry. If you wish to know how we can support in growing your business; feel free to contact us.

Written by Nara, ACMA, CGMA (CIMA-UK), MBA (ICFAI University). Nara is a Commercial Accountant at SandS Australia. She has 15 years of experience in business, finance and accounting in senior managerial roles helping analyse, identify, and drive business growth

Edited by Sam Mansoor. Chartered Management Accountant, CPA, Chartered Global Management Accountant, Dip. Equity Trading. He has over 30 years’ experience helping businesses achieve immediate and long-term success.