“Covid anxiety has been replaced by inflation anxiety”
*Margaret O’Brien, Ennis Chamber of Commerce. Photography: Arthur Ellis
Clare Echo’s Sunday Read series continues with a report on inflation: Which Clare industries are hardest hit?
The price increase is the the main story of 2022 and it’s here to stay. Rising energy costs and a perfect storm of supply chain issues and a global pandemic have been catalysts for inflated fuel prices, rents, groceries, car prices, real estate prices and more. Wage inflation is almost certainly inevitable. At 5.5%, inflation is at a level not seen since April 2001 and the optimism felt by companies emerging from the pandemic has given way to more uncertainty.
Up to 250,000 Irish households now have to choose between keeping their homes warm or putting food on the table, according to the government. Most Irish families will be at least €2,000 worse off in 2022 than last year and those on the lowest incomes will be “much worse off”. irish time Conor Pope, consumer correspondent, describes it as “an incredibly serious problem”. “The budget will arrive and if inflation is at 10% or 7.5% … the government will be under pressure to match it on social benefits. He will also be under pressure to increase tax credits for people who are in the PAYE sector, he will also be under pressure to increase public sector wages and all of these things are fueling more borrowing and a less stable economy.
“We haven’t really been in a situation like this since pre-Italy 90 and that’s what scared a lot of people in government and financial circles a bit.”
It’s a dilemma experienced not just in Ireland but around the world, and the European Central Bank will consider raising interest rates in a bid to buck the trend if inflation doesn’t cool by summer. with falling demand for fossil fuels.
But what are the physical consequences felt by businesses in County Clare so far?
The telltale signs began last year when companies began to absorb rising costs. At the beginning of December, The Clare Echo was contacted by its printer to warn him of a 60% increase in the price of newsprint. Since a newspaper’s printing bill is one of its biggest overheads, that means a big hit.
Claire’s Echo contacted businesses across the county to find out who is in the most rush and where customers could be hit in their pocket.
The four-star Shannon Springs Hotel has not raised prices, noting that a price review was not high on its list of priorities when they were given the green light to fully reopen after two treacherous years of restrictions recurring. “We were just thrilled to be open,” says co-owner Dermot Kelly. However, something may have to give as hospitality continues to be one of the hardest hit industries.
Mr Kelly, chairman of the Irish Hotel Federation in the Shannon area, said inflation was “exponential”.
“The cost of energy has really increased. We are seeing 100% increases. Bills that would have been €7,000 for electricity, we see €14,000 for the same month in previous years. We are also seeing that our insurance costs – even though we have been partially closed for two years – have increased despite low occupancy and low footfall. These are also beyond our control, but they are up 24% year over year. He adds that hotels have also had to deal with rising costs for fresh produce such as meat and fish.
Dermot notes that a local rate authority is in place for the first quarter, but he expects “serious pressure” on the hospitality industry when it resumes. “You have to find that money somewhere without really affecting your customers, both domestic and international. In my opinion, hotels bear a disproportionate burden of it in the county.” The controversial 50% increase in the VAT rate on l home (which would be the second highest rate in Europe) is expected to be implemented from the end of August, which Dermot predicts will “aggravate the inflation problem”.
“We haven’t raised the prices yet, but I’m sure as you know we’ve been advised by the various drinks companies over the last few weeks that the price of a pint is going to go up, so it’s happening. as well and we will have to find the best way to handle this.
Margaret O’Brien, CEO of the Ennis Chamber of Commerce, said retailers were “already feeling the pinch and worried about what was to come”.
“It’s dual. Retailers are worried now because they don’t know how temporary or long-term this customer reaction will be. There certainly seems to be more reluctance to spend money right now, and obviously, when it comes to running their own business, they face the same inflationary challenges as consumers at home. It’s about budgeting, it’s about the cost of running the business. I would say they are worried.
Based on her discussions with retailers, Ms O’Brien said companies “should think twice” about price increases. “If people don’t have money in their purses, how are they going to get it? I think one anxiety has replaced another, Covid anxiety has been replaced by inflation anxiety.
Claire’s Echo also spoke to Cargo King, a Newmarket-on-Fergus based haulage company involved in the airfreight and lines business for one of the major parcel delivery companies. Their largest variable costs each year are insurance, fuel and wages.
Director Aengus King admits this year has been “exceptional” when reviewing their annual budget. Equipment costs increased by about 30%, diesel increased by 40%. Cargo King recently invested in CNG gas trucks in an effort to reduce its carbon footprint and operating costs, but CNG gas has grown by more than 100% in the past 12 months. The company also recently increased salaries to account for the increased cost of living for its staff.
“We are currently negotiating prices with our customers, but we believe there is no way to recoup all of our increased costs,” says Aengus.
With over 300 member companies in the greater Shannon region, representing a wide range of sectors, Shannon Chamber was keen to assess the impact of inflation on business.
Commenting on the feedback received, Chamber CEO Helen Downes said rising costs were impacting the competitiveness of Shannon-based businesses and there was a danger that some clients would take their business to Asia “this which is worrying because once the business is lost, it is very difficult to regain it in the future. This means that in order to be competitive and win business, companies must absorb rising costs”.
“Overall, businesses are feeling the pressure of inflation on both rising material and labor costs. The main drivers are the prices of gas, electricity and gasoline. Material inflation can be up to +30% and labor is the same, and in some cases higher, as many of the positions companies are hiring for are in high demand and people choose to contract so the market is strong. Contract costs per hour are double that of permanent positions. »
Sectors showing robustness in the jaws of inflation are ICT and pharmaceuticals, sectors which, while facing a growing cost base, are also experiencing successful growth. However, many Shannon Chamber member companies are genuinely concerned that the cost of living will continue to rise in 2022, reducing available discretionary spending.
“The traditional SME is potentially where the impact will be the greatest,” Ms Downes said, adding: “Businesses that operate on low margins and are smaller in size and, or, have tight cash flow and , or are heavily borrowed are going to have a tough year.
“Member feedback indicates that each profit and loss line will be reviewed to see what can be cut or adjusted. Nothing will escape analysis.
Padraic McElwee, business manager at Local Enterprise Office Clare, says while businesses have mostly come out of the other side of the pandemic in a healthy place, their customers are worried about inflation.
“They don’t use the word inflation, they see rising costs, which is really the same thing, but it’s probably a different language. I think they were all hoping it would be transitional in nature, but are now starting to wonder if it’s stickier, for lack of a better word,” he says.
Padraic notes a combination of factors at play, including a legacy on Covid and the supply chain. “When the downturn has happened with Covid and factories have reduced production and containers are in play, there’s a whole combination, so people are ‘competing’ for available container space, so the price increases. For now, companies have absorbed that, but there comes a point when they can’t absorb it anymore, they’re going to pass it on and that’s when consumer inflation starts to kick in.
He cautions against this, saying there have been opportunities, particularly among engineering companies, to develop more local businesses due to supply chain issues.
“The key to inflation is that businesses may absorb increased operating costs, but at some point they will have to start passing those costs on. You are already seeing some of this happening.