How does rising inflation affect entrepreneurs and SMEs?
Posted: Sun Dec 22, 2024 7:08 am
What is inflation?
Inflation is defined as the variation or rise in the prices of goods and philippine pie telegram services in the market. In concrete terms, inflation is nothing more than the imbalance or difference between the price of most products or services and the loss in value of money in a country.
Currently in Chile we are at approximately double the inflation levels we had in the last 4 years, when we were at rates of around 2.5%-3% average increase in prices in the economy, and currently, experts say that we could reach 8%.
How does this increase in inflation affect an SME?
Firstly, the increase in the costs of certain inputs and materials, transport or parts, fuel, etc. Increased costs may induce a company to increase the prices of the products or services it offers. On the other hand, when it comes to accessing credit or loans, rates may increase.
In production chains, SMEs depend on large companies that may be potential buyers or from which they purchase their inputs. Therefore, small and medium-sized companies are susceptible to fluctuations in the main macroeconomic indicators, and this highlights the vital importance of understanding how inflation affects SMEs.
It is important to be alert and plan
It is of utmost importance for small and medium-sized businesses to keep an eye on the inflation rate and, consequently, on costs. If a company is able to prevent costs from rising due to inflation, it will be possible to better manage its budget and expenditures on raw materials and other inputs necessary for its operation.
One of the issues most affected by inflation is access to new capital. Therefore, it is also crucial to monitor interest rates and their influence within the financial sector. Planning correctly and knowing when to access or not a loan or credit is vital for an SME.
Along the same lines, with the increase in inflation, there is a loss of purchasing power month after month, since the salary goes less. Additionally, there is a direct consequence, especially in the cost of mortgage loans, which, being agreed in UF, as a measure of real value, the installment in pesos increases in that proportion, typically greater than income.
The above is explained because the price control tool is the setting of the monetary policy interest rate by the Central Bank, which determines the interbank loan rate, so, to discourage consumption, bank interest is raised for individuals and companies, and therefore it is more expensive to go into debt, which is combined with greater restrictions or requirements for granting them.
However, a direct effect of inflation on entrepreneurs is that their production costs will increase due to higher input costs. They will even have to increase their wages due to the pressure of not finding labor that corresponds to the prices prior to the increase in inflation.
For all these reasons, it is necessary to manage resources well in order to try not to generate losses and keep the business stable.
Simon of Cyrene Corporation
Inflation is defined as the variation or rise in the prices of goods and philippine pie telegram services in the market. In concrete terms, inflation is nothing more than the imbalance or difference between the price of most products or services and the loss in value of money in a country.
Currently in Chile we are at approximately double the inflation levels we had in the last 4 years, when we were at rates of around 2.5%-3% average increase in prices in the economy, and currently, experts say that we could reach 8%.
How does this increase in inflation affect an SME?
Firstly, the increase in the costs of certain inputs and materials, transport or parts, fuel, etc. Increased costs may induce a company to increase the prices of the products or services it offers. On the other hand, when it comes to accessing credit or loans, rates may increase.
In production chains, SMEs depend on large companies that may be potential buyers or from which they purchase their inputs. Therefore, small and medium-sized companies are susceptible to fluctuations in the main macroeconomic indicators, and this highlights the vital importance of understanding how inflation affects SMEs.
It is important to be alert and plan
It is of utmost importance for small and medium-sized businesses to keep an eye on the inflation rate and, consequently, on costs. If a company is able to prevent costs from rising due to inflation, it will be possible to better manage its budget and expenditures on raw materials and other inputs necessary for its operation.
One of the issues most affected by inflation is access to new capital. Therefore, it is also crucial to monitor interest rates and their influence within the financial sector. Planning correctly and knowing when to access or not a loan or credit is vital for an SME.
Along the same lines, with the increase in inflation, there is a loss of purchasing power month after month, since the salary goes less. Additionally, there is a direct consequence, especially in the cost of mortgage loans, which, being agreed in UF, as a measure of real value, the installment in pesos increases in that proportion, typically greater than income.
The above is explained because the price control tool is the setting of the monetary policy interest rate by the Central Bank, which determines the interbank loan rate, so, to discourage consumption, bank interest is raised for individuals and companies, and therefore it is more expensive to go into debt, which is combined with greater restrictions or requirements for granting them.
However, a direct effect of inflation on entrepreneurs is that their production costs will increase due to higher input costs. They will even have to increase their wages due to the pressure of not finding labor that corresponds to the prices prior to the increase in inflation.
For all these reasons, it is necessary to manage resources well in order to try not to generate losses and keep the business stable.
Simon of Cyrene Corporation