Our friends over at Ledger Gurus put together some ecommerce specific financial predictions for 2022. Much of these predictions will impact any business, but the take is specific to those doing business in ecommerce.
- Inflation continues
- Interest rates rise
- Supply chain challenges persist
- Ecommerce acquisitions stay hot
- Traditional digital marketing is less effective
From a financial perspective, it’s all about inflation. COVID may have created the conditions, but inflation derives all aspects of this prediction list. Inflation was supposed to be temporary or transitory using the language of the Federal Reserve, but it’s holding on and growing. In November 2021, the Consumer Price Index was at 6.8%, marking the strongest inflation since 1982!
The cause of inflation is often attributed to supply chain issues, but price increases are everywhere: housing, cost of labor, energy, and more. What isn’t discussed as much is the massive increase in the money supply in the form of business programs (think Paycheck Protection Program), individual programs (think extended unemployment), and the fancy concept of quantitative easing where the Federal Reserve has purchased massive amounts of bonds and securities to the tune of $4 Trillion dollars. The way they do this is through increasing the money supply. The reason is to keep the economy liquid and moving and how it has moved.
This has resulted in a lot of benefits for businesses selling goods where people have money and are willing to spend. The challenge is that winding down this stimulus is delicate and without some care and luck, it may end in an ugly recession.
For now, I’m saying to plan on continued inflation in 2022, meaning higher costs of inventory, shipping, labor, and everything else. Let’s hope it levels off, but inflation can be hard to slow down once wound up.
Interest Rates Rise
To combat inflation, the Federal Reserve is winding down quantitative easing and has stated there will be three interest rate increases in 2022. How high rates will go will likely depend on the size of inflation. In 1981, to combat inflation, the Federal Reserve raised the Federal Funds Rate to 19% which arrested inflation growth, but also resulted in a recession. The line that the Federal Reserve is walking is narrow in that they need to combat inflation while ensuring the economy persists. In recent decades, increases have been minor, but don’t hold your breath on where it will go.
Regardless of how high rates are by the end of 2022, here are some things every business doing ecommerce should consider:
- Loans and lines of credit will be more expensive
- Refinance loans now to take advantage of historic lows
- Lock in rates for all debt if possible
- If you are thinking of doing any sort of financing, do it now!
- Now is a great time to have good debt. A year from now won’t be as favorable.
View the rest of the article on the Ledger Gurus blog.