Inflation Risk: High Interest Rates, Possible Stagflation – Is Your Risk Plan Ready?

Inflation Risk: High Interest Rates, Possible Stagflation – Is Your Risk Plan Ready?

Jul 4, 2022 | Business Continuity, Corporate Culture, Incident Reponse

inflation risk

Paying more at the gas pump? Are those groceries costing you more than even a few weeks ago? Are the raw materials your company relies upon costing more? Are you debating or actually raising your prices to your customers? Are your stakeholders nervous?

An Unsettled Economy

This is clearly an unsettling time in the economy – for inflation, interest rates, oil and gas prices, food and goods prices, job creation and onwards. There is significant uncertainty being caused by the real and market perceptions of inflation which is evidenced by the knock-on impact of significantly rising interest rates. This adds to costs for all of us.

There are various measures of inflation that have it ranging from 6 to 9% without a clear indication of how long it will continue or if it will rise or lower and over what timeframe. Inflation has reared its ugly head quickly giving individuals and companies little time to react or plan. And it is beginning to force actions in household spending as well as raising the cost for businesses to produce and deliver their products.

Not The Time To Panic

Based upon the market reaction over the past few days, it is also clear that companies and individuals, at best, do not understand what the FED’s recent interest actions mean. Or, at worst, they do not believe them. This means they believe the economy is worse than the official indications.

It is clearly the time to dust off your plans on how to deal with rising interest rates and the potential for sustained inflation…

The actions of the Federal Reserve Board (FRB), not seen in many years, over the last few weeks and the specter of additional interest rates hikes in the near term (less than 4 months) and continuing uncertainty on the level of inflation, consider adjusting your risk plan to address the following items:

  • Does your plan have sufficient and updated triggers for when you need to conserve cash and capital?
  • Are there contingency plans for actions that can be implemented quickly as the triggers are met – to raise cash, conserve cash, bolster capital, if needed?
  • Do your plans have prudent measures to adjust pricing without losing market share to recoup your rising costs?
  • Have you thought through the communication elements for your customers and your associates?
  • And if not, do you have a concrete plan to reduce your costs in areas not impacting production or product creation?
  • Do you have plans to communicate to your stakeholders the potential impacts to profitability, dividends, staffing or investments in the future?
  • Have your triggers factored into account the possible long-term and short-term durations of this economic dislocation? i.e. are there escalating triggers and actions

Joe Prochaska, Board Member, The Santa Fe Group

Joseph (“Joe”) J. Prochaska Jr is an experienced board member and strategic financial executive with over 30 years helping some of the world’s largest insurance related companies improve profits, navigate transformation activities including mergers and acquisitions and enhance financial systems. Joe has an extensive background in accounting, financial reporting, financial systems, and risk evaluation.  He also brings deep information technology experience including enterprise-wide financial and operating systems and cyber security. Joe is designated as a Qualified Financial Expert under Sarbanes-Oxley and serves as an independent director and Qualified Risk Expert on the Synovus Financial Corp. Board. Read more about Joe Prochaska and the Board Risk Committee here. 

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