Editor's Note: Signs of Inflation
As if the high prices and poor availability of business insurance, workers comp, health insurance, steel, copper, stainless and cement were not enough, now we may be faced with a potentially more dreaded enemy: inflation.
All of you young bucks out there who have been out of school and in the roof contracting business for less than 20 years may not be able to relate to this message, but stay with me. Those of us who lived and worked in the late 1960s through the early 1980s have a somewhat different definition of the economic term "inflation" than the one with which you have grown up and lived.
Inflation, particularly when it grows to the double-digit size, is a disease that removes economic stability and replaces it with uncertainty and change. I usually like change, but this is no friend of mine.
There are increasing signs that inflation is on the rise, and there may be nothing we can do to stop it. The prices of so many basic commodities such as oil, iron ore, coke, cement and even food, have been rising for some time, and will ultimately make their way through the economic chain. It is one thing when you have to pay more for materials and supplies in your business, but it gets downright personal when you get hit with rising prices for bread, eggs and milk.
With shortages and price increases in basic commodities come increases in prices across the board, and on top of that, the greatest likelihood is that interest rates will begin to rise as well. And interest rates can rise very, very quickly. High interest rates are certainly no friend to the economy in general, but can be particularly harmful to the construction industries.
I'm not preaching gloom and doom here. Hell, even I lived through the ‘60s. But what should you do? The best advice I have is to keep your eye on prices and stay focused on your business. Putting prices out without qualifiers can spell death in an inflationary cycle. Limit the amount of time for which any price will be good and put escalators in your contracts whenever and wherever possible.
Everyone in business should know that an increasing rate of inflation is not out of the realm of possibility and should be willing to accept limitations within construction contracts. Do not expect anyone to like it, even the ones who will accept it. As for those of you who have never lived in a time when inflation was approaching or entering double-digit territory, this may sound like one of my more insane rants. Perhaps it is, but if you are in that category, you do not have to take my word for it. Find some other 50- or 60-something businessperson that you know and ask how much fun it is.
What else can you do? Speak with your accountant, who may have some really great ideas for you. We used to call them "hedges against inflation." Maybe it is a good time to check into that economics class at the community college. You could learn what it was like in the "bad old days." If this all blows over and our economy continues to grow at a decent rate without going through an inflationary cycle, no one will be happier than me. But I am going to plan as if the cycle were beginning.