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Choosing an Inflation Benchmark

By Jackie Greene on July, 30 2021

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Jackie Greene

Jackie is the Vice President of Economics at ITR Economics, and oversees forecasting and applied research.

Inflation has become a rising topic of conversation as the rate itself has risen. While we do not expect today’s elevated inflation level to be the start of 1980s-level inflation, we do expect to see generally higher inflation during the 2020s than during the preceding decade. You are going to need to factor inflation into your plans more than you previously were.

While we all want our top lines to grow, we really need the bottom line to grow, and increasing inflation can easily lead to a higher top line without the bottom line keeping up. Using the appropriate inflation metric for pricing and budgeting can have a significant impact on your ability to protect your profit margins. The US Bureau of Labor Statistics (BLS) publishes data on inflation and producer prices for a myriad of goods and services, from A to Z. We routinely examine these trends and can help you select the right gauge for your business.

However, there may be times when you want to use the broader US Consumer Price Index (CPI) or US Producer Price Index (PPI), because these are more encompassing and therefore easier to set as a singular benchmark with customers and vendors. If that is the case, consider using the PPI with your customers and the CPI with vendors and employees. The PPI has a tendency to rise by approximately three percentage points higher than the CPI. This will provide you with a little natural cushion for your margins.

PPI and CPI

If you would like to discuss the impact of inflation on your business so you can plan with confidence, please don’t hesitate to contact us.

 

 

    1. Jackie Greene
      Director of Economics

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