A Pricing Strategy for Inflationary Times

Economists in the United States and Central banks in Europe and the UK predict inflation will continue to climb over targets and begin to slow down only next year. And even then, economists suspect a long-term inflation problem.

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Rising inflation has been disrupting global markets in recent months and is likely to endure well into the future. Inflation will continue to rise over the next two years, according to revised projections by the OECD. It is expected that price increases will be significantly higher over the next two years than previously forecast for most G20 countries. Since inflation increases inventory costs, businesses need to develop new purchasing and pricing strategies to minimize future price spikes. Retailers and brands must shift to a new pricing infrastructure that will consider future inflation changes when predicting supply replenishment costs.

As we are all searching for the way out of the pandemic recession, we face a somewhat new challenge -- global inflation. After almost a decade of relatively low inflation, global prices climbed to extreme new heights in the last couple of months. Inflation is a global phenomenon, affecting not only the United States and Europe. For example, in China, factory-gate inflation in August accelerated to a 13-year high, adding even more pressure to global consumer prices. In Japan, wholesale inflation is also nearing levels unobserved since the global financial crisis.

Economists in the United States and Central banks in Europe and the UK predict inflation will continue to climb over targets and begin to slow down only next year. And even then, economists suspect a long-term inflation problem. The OECD is even less optimistic and projects inflation will continue to rise over the next two years.

Rising prices are driving up costs of inventory procurement and threatening margins. Under these extreme conditions, the old ways businesses conducted their pricing and procurement strategies will be enough. In an inflationary economic environment, those who will survive will have to adapt quickly to the new market conditions and find new, better ways to protect themselves.

There are multiple reasons why inflation is on the rise and apparently here to stay. Differences in vaccination rates between countries to outbreaks of the virus, forcing some countries to restrict activities, eventually resulting in bottlenecks and pressures on supply chains. As economies re-open, the rapid increase in demand that has pushed up prices in essential commodities such as oil and metals. Tensions along supply chains caused by the pandemic have added to cost pressures. At the same time, shipping costs have increased sharply.

After over a year of the Coronavirus disease (COVID-19) restrictions, consumer demand has met strained delivery routes and supply chain problems. Even now, supplier’s delivery times are getting longer as factories are experiencing delays receiving raw materials. Combine that with the quantitative easing led by the U.S. economy, and you get the perfect market conditions for inflation to raise its ugly head.

Growing procurement costs pose another challenge of simply managing inventory. As a seller, ensure you have enough stock to sell over time. It is better to secure sufficient inventory before procurement costs rise even further (taking into account seasonality and expiration dates). 

Under these conditions, it is better to act fast and develop improved, robust strategies to secure business revenues. Failing to act might result in substantial losses and may lead to money flow problems, and in extreme cases, some businesses might go bankrupt. 

To do so, you need a way to calculate future inflation rates in real-time. You must be able to look back on how, when and at what pace your inventory costs have changed over time. Once you have a prediction model of the inflation rate in your industry, construct a leading strategy to keep you ahead of the curve in both pricing strategy and inventory maintenance, adjusting in real-time to changes in market conditions.


Gathering all relevant data and producing a model that predicts future costs is no simple task. Even today, many companies still use outdated, manual spreadsheets to make such complicated decisions. Even if those ways were enough to produce satisfactory results for businesses in "normal" times, this is no longer the case.


Supply chain constraints and bottlenecks are raising costs rapidly across the board. Under these conditions, businesses that will continue to rely on manual ways to analyze multiple, ever-changing data sources will find it extremely hard to keep up. Especially when competing with industry giants armored with better artificial intelligence (AI)-based pricing tools.


Scientific, data-driven pricing software enables retailers and brands to monitor market trends and make more informed decisions. For a business to survive and thrive in an inflationary environment, it should have the ability to adjust prices according to changes in costs even before they happen, as they take into account future replenishment costs, otherwise risking their margins. Obviously, in cases of hyperinflation or when failing to react in time, there is also the risk of actual losses.


These are extraordinary times in more ways than one. Consumers and businesses alike are facing immense, never-before-seen challenges. Yet, times like these are when human ingenuity shines brightest. We have the means to overcome these hurdles.