Wind of Change is in the Air

Wind of Change is in the Air
ESA Communications — April 18, 2022

Now that we have “dispensed” (as quoted by Fed Chair Powell) with the word “transitory” as an adjective to inflation, we must look forward to higher costs for goods and services for the foreseeable future. Many legislative efforts this year have tried to mitigate the problem with bills to increase the minimum wage, but those who push such legislation fail to see the ripple effect such efforts have down the road as we address the real drivers of inflation. Most of these drivers are out of our hands as individuals and small businesses. But we do control how policy makers address these drivers and all indicators right now point toward the mid-term elections being a referendum on inflation.

Of course, the political parties have different approaches on how they will address inflation and its impact on consumers, but the party in power always suffers most when the economy is not going well. You may have heard of the recent “yield curve inversion” that happened when the short-term treasury notes paid a higher interest rate than the long-term treasuries. What experts say is that a recession always follows the yield curve inversion. But what history also shows is that it takes 18-24 months for a recession to begin after the inversion.

What this means for electronic security and life safety companies is that you have time to prepare for the likely recession that is to come. The unique factors we face now are not only the typical economic indicators at the macro level, but the war in Ukraine adds another significant contributing factor. Russia holds a strategic grip on the crucial energy needs over much of western Europe and this compromises their attempts to sanction Russia through or on behalf of all NATO allies. This reality in combination with the Biden Administration policy to move toward renewable energy initiatives and reduced domestic oil and NG production will result in sustaining higher prices for gas, natural gas, and heating oil.

Higher gas prices will be passed down to consumers and companies. Higher prices for virtually everything else will continue to flow from higher gas and oil prices. Everything that is shipped by truck, rail or air will cost more. Everything that is harvested, produced, or manufactured will cost more. Labor will cost more even without legislation mandating it because there are still 11 million unfilled jobs with a lower workforce participation rate than 2019. Demand is continuing to exceed supply for everything.

So, how you plan for these changes will be crucial in the following months. Factor the current inflation rate into your business plans. At the legislative and regulatory level, be engaged with policy makers to the greatest degree you are able in order to impact how policy is shaped in the months and years to come. And, as I frequently request, stay engaged!

To quote from the song by The Scorpions, “The future’s in the air, Can feel it everywhere, Blowing with the wind of change.”

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