5 Industries Critically Impacted by Rising Inflation
28 October 2022 |
The C2FO Team
Wholesale trade, construction, and food and accommodations are among the industries feeling the pressure.
Rising costs have touched practically every corner of the economy, raising expenses and forcing companies to increase their prices. But some industries have been impacted by inflation to a greater degree.
As part of this year’s Working Capital Survey, C2FO questioned CEOs, CFOs and other decision-makers in 10 countries about their financial outlook — including their forecasts about the impact of inflation on their companies. Specifically, they were asked if they planned to raise prices as a result of inflation and, if so, by how much.
A majority of respondents in all industries said they were planning to raise prices, but there were five verticals that stood out in this year’s survey.
Wholesale trade — aka the business of selling goods to other businesses and organisations — is a leading indicator of the overall economy.
In this year’s Working Capital Survey, 77% of respondents in this industry expected to increase their prices. In fact, a total of 36% said they would increase prices by 6% or more, a sharper response than any other vertical in the survey.
Some of that is due to higher wages and pent-up demand from the past few years. In September, Germany reported a year-over-year increase of 19.9% in wholesale trade prices due to higher costs for raw materials and intermediate products.
From worker shortages to skyrocketing material costs, few sectors have been hit as hard as construction.
About 75% of construction professionals said they planned to raise prices.
About 14% expected an increase of 6% to 10%, while 13% planned a hike of 11% or more. No other industry had more respondents predicting a rise of 11% or higher.
Name a trend in the economy — higher materials costs, supply chain issues, housing shortages, hiring challenges — and the construction field has been affected by it.
And that includes pressure from the Russia-Ukraine war. According to ING, construction activity in the European Union has declined by 2.2% since February.
In September, the UK construction sector recorded growth for the first time in three months as crews were able to get back to work on projects that had been delayed. Supply shortages also improved that month, too.
Unfortunately, new orders were the weakest since June 2020, according to the S&P Global / CIPS UK Construction Purchasing Managers’ Index.
Accommodations and Food
Ultimately, unlike other categories, people will always have to eat. They can downscale how much and change to less expensive alternatives, but there will always be a baseline of demand that won’t go away.
Overall, 74% of respondents in the accommodations and food industry expected to hike prices on customers. And it was one of the industries that expected to raise prices by a great degree: 21% predicted they would raise prices by 6% to 10%, while 9% said they would raise prices by more than 10%.
That prediction not only held up, but may be worse in reality. In September, food inflation was almost 16% in the European Union and 14.6% in the UK on a year-over-year-basis. The basics — milk, bread, meat, eggs — helped drive the increases.
Several factors are driving the growth in food prices. Poultry has been sharply higher because of a worldwide outbreak of avian flu. Meanwhile, the Russia-Ukraine war has reduced the available supply of wheat and sunflower oil, among other crops.
Tourism officials are concerned about the impact of higher energy costs heading into the end of year, but several countries, especially in the south, are enjoying higher levels of business from international travellers, especially US tourists taking advantage of a stronger dollar. The number of international tourists could hit 80% of levels from before the pandemic, the UN World Tourism Organisation noted.
This includes service professionals who are not involved in health care, education, scientific, professional or technical services — for example, equipment repair, pet care and dry cleaning. About 74% of these respondents were expecting inflation-related price increases.
Increased demand and worker shortages, combined with calls for higher wages, have fueled inflationary pressures.
In September, the most recent month for which numbers were available, services was the third biggest contributor to the euro zone’s year-over-year inflation, Eurostat reported.
Transportation and Warehousing
A total of 73% respondents in transportation and warehousing planned to raise their prices. About 23% planned to raise rates by 6% to 10%, one of the larger groups planning increases.
Vacancy rates for European warehouses was under 4% for the first half of the year, BNP Paribas Real Estate reported. Meanwhile, prime rents were up 12% on an annual basis.
It makes sense that warehousing costs have spiked. Online retail in the UK, which runs on warehouses, has doubled from 19% of retail in February 2020 to 38% in January 2021. Meanwhile, more retailers have tried to boost their inventories to account for supply chain and shipping delays.
In the UK, the transport and storage industry has seen massive growth in recent years, growing by 88% between 2011 and 2021, as measured by the number of business premises.
As far as transportation, the cost of shipping spiked earlier this year as companies tried to both meet pent-up demand and build up inventory in case there were more shipping delays or COVID-19-related shutdowns. As a result, the cost of shipping goods soared.
But in recent months, rates have fallen — partly because many of the supply chain issues are working themselves out, partly because there’s less demand for shipments. Some experts warn this could be another sign of a coming recession.
The bottom line
This year’s run of inflation has been the worst in decades, and you can see its effects in practically every industry. But there are also signs that pressures may be easing in some categories.
If your company needs help finding more working capital to cope with higher prices, take a closer look at C2FO’s industry-leading solution.