High inflation has been one of the lingering consequences of the COVID-19 pandemic. According to the U.S. Department of Labor, the Consumer Price Index in November 2022 had increased 7.1% over the previous 12 months. Resurgent consumer demand, business closures, transportation disruptions and port congestion have all conspired to put pressure on suppliers and raise the cost of doing business.
Many suppliers and manufacturers have struggled to adjust their management and logistical structures to keep pace, forcing them to push increased costs down to consumers. While this can help them maintain profit margins in the short term, it only contributes to the rise of prices across the supply chain and the long-term persistence of inflation, putting businesses in a double bind.
Regardless of the possible solutions, inflation is likely to pose several challenges for suppliers and manufacturers throughout 2023 (and beyond). These include:
1. Increased foreign exchange risk exposure
Many manufacturers and suppliers today maintain business relationships across international borders, meaning they often have to deal in multiple currencies and balance fluctuating exchange rates. Inflation tends to impact countries in different ways, however, and less stable currencies are often unable to weather the crisis and maintain their value.
Businesses that buy from suppliers based in countries with weaker currencies could expose themselves to significant risk if the values of those currencies drop too much, while those that sell to certain buyers might make bloated returns that artificially inflate performance reports and revenue projections.