For many years leading up to 2020, startup founders could put together a balance sheet with confidence that the cost of doing business — paying salaries, renting an office, or buying materials or services — would stay relatively the same, or increase at predictable increments.
But the Consumer Price Index (CPI), generally known as cost of living, is now at it highest in decades, data released Thursday show. That means changing math for company leaders.
Between groceries, gas, clothing and utilities, you probably don’t have to see hard data for you to know it’s an expensive time to live in the United States. But the Bureau of Labor Statistics’ (BLS) most recent CPI data does prove it: The Thursday report shows that US consumers are paying 8.2% more for all items than they were at this point last year. The consumer price index increased 0.4% for the month of September, after inching up and down all year.
Food prices and energy prices were large drivers in that inflation, per the report, with food costing 11.2% more and energy costing 19.8% more than this time last year. All items besides food and energy — which tend to fluctuate rapidly, BLS said — rose 6.6%, with expenses for medical care rising 6.5% and housing rising 6.6%. These figures, which show a snapshot into the current cost of living, are the highest the CPI’s been in four decades.
Though there are some outlier years, like those surrounding the 2008 financial crisis, for the last decade, the cost of living has generally increased 1% or 2%. For the first time since 1981, the cost of living has increased more than 8% from last year.
Inflation in Philadephia
Philadelphians have been feeling the squeeze themselves, though the inflation rate seemingly peaked this summer, and dropped for the first time in 12 months in August, down from 8.8% in June to 8.1%, according to a recent report from the Economy League of Greater League. It’s the first sign of relief for prices that started increasing heavily in the summer of 2021. The slight price decreases we’ve seen in recent months may or may not continue, the report said.
The two national driving forces of CPI — energy and transportation — decreased between June and August of this year in Philadelphia, but food and medical care saw significant increases regionally, as reflected in the most recent national data. Inflated housing prices and rent are causes of concern, though they too declined between June and August.
“Different sectors of the US economy are creating opposing inflationary pressures, which make it difficult to speculate inflation rates in the coming months,” the report said. “Greater Philadelphia remains behind the US and other metropolitan regions in experiencing peak inflation, but the inflationary pressures still exist in our local economy that might increase overall prices in the last quarter of this year.”
In an earlier report about inflation, the Economy League outlined that stagnant wage growth has been an issue in Philadelphia. The cost of living in Philadelphia has outpaced the rise in wages, which could lead to a “growing unaffordability gap.”
Considerations for business owners
So, how does inflation affect you or your business?
Heading back to the drawing board for anyone who’s started a company in the past decade: Prior to 2020, you’ve probably been used to the cost of living going up 1% or 2% each year. That means you can budget to pay similar prices for office space, salaries or paying vendors.
Every raise you gave your employees was essentially brand new cash in their wallet, one founder told us. But when the CPI raises sharply, yearly increases need to either account for that, or fall short of cost-of-living.
Another founder, Modded Euros’ Sean Dawes, said that business leaders will look for any cost-cutting they can. He does so on a quarterly basis, whether or not we’re in a high inflation period. One portion of the tech sector that could be vulnerable are SaaS products, he told Technical.ly, or any that rely on monthly or annual subscribers and may be trimmed amid budget audits.
Some in the tech industry operate with a lot of cash on hand, which can give them a bit more flexibility, even when their revenue is down — “but when it comes to other sectors the lack of burn rate is what can cripple or ultimately kill these companies,” Dawes said. His advice to tech founders? Prove to be very valuable to your clients.
“When anyone, business or consumer looks at a chopping block the first thing they do is an analysis of value/return. As a tech company, they need to ensure they are positioned as a value add business to their customer base. There are tech companies I use here at my own business,” he said, “which they could probably double the SaaS pricing on me and I would still pay the annual fees.
“And there are others if they drastically raised their pricing, I would find alternatives if the time to replace offset my savings.”
Knowledge is power!
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