The cost of consumer goods is rising, according to the Bureau of Labor Statistics. The reported 4.2% increase across all goods in April is the largest rise since the summer of 2008.
With groceries, gas, homes and cars all costing more — and an uncertain future ahead — some economists believe there is a chance the U.S. may enter into a period of inflationary increases. That’s something most American managers and consumers have not experienced or have long since forgotten.
University of Minnesota Professor Mark Bergen in the Carlson School of Management suggests we can use lessons from extreme inflationary episodes, known as hyperinflations, to offer perspective. He can speak to what history shows us about inflationary consequences and how the lessons learned can help consumers and businesses alike prepare to navigate them more successfully.
Mark Bergen, Ph.D.
“If it does happen, our best lessons about managing through a period of inflation come from periods of hyperinflation — which are rare events such as in Germany in 1923 and Zimbabwe in 2008 — because we can clearly see the consequences of decision-making. Those lessons can then be tailored to fit a far less extreme situation.
“These lessons can be used to help managers, consumers and our communities reduce risks, decrease the costs of navigating inflationary price dynamics, more successfully manage portfolios of physical and financial assets, and build their inflationary literacy and capabilities.
“Here are some key ways managers can prepare for any inflationary period:
- Assess payment timing: Audit the vulnerability of contractual pricing terms (such as those that set pricing obligations over the span of months) and adjust accordingly.
- Reduce the cost of price adjustments: During times of inflation, prices change more frequently. Firms should find ways to minimize both staff time and production costs by making it easier to change signage, such as using electronic price tags, and adopting new structures such as indexation (i.e., changing the price of one item due to the cost of another).
- Create stability through structure: The goal is to provide some sort of stable and consistent pricing. One example would be consistent pricing over a longer period of time. This could be keeping customer payments at $50, but increasing the number of payments from five to six.
“Consumers need to build knowledge — by increasing their inflation literacy — about the consequences of inflation to determine how they can react when prices are rising. That could mean paying cash now instead of financing, negotiating flexibility through payment terms, building in another 10-20% into the grocery budget each month, or holding more physical goods and assets that hold their value during inflation. Of course, those who are most vulnerable are most at risk of being harmed during inflation, often limiting access to essential needs and services. Community leaders should pay attention to how to support these individuals too.
“These are just some of the ways preparations can be made to navigate periods of rising inflation, if or when it occurs.”
Mark Bergen, Ph.D., is the James D. Watkins Chair in Marketing at the Carlson School of Management. Bergen's research focuses on pricing and channels of distribution, where he has studied issues such as pricing as a strategic capability, price wars, pricing as truces, and how AI can help companies set prices more ethically.
- Business and Management