Inflation is Slowing Down: What Does This Mean for Print Shops?

Inflation is Slowing Down: What Does This Mean for Print Shops?

The US consumer price index rose at a rate of 6.4 percent in January this year in contrast to a year earlier, a modest decline from 6.5 percent in December 2022. While it does signal that inflation is beginning to go down, Federal Reserve Chairman Jerome Powell warned that it will “take quite a bit of time” and that it won’t all be smooth sailing. Nevertheless, this is still good news as this marks the seventh month of shrinking inflation since it peaked at 9.1 percent in June 2022.

Annual inflation rate, US, Apr 2022 - Jan 2023
Sourced from Trading Economics

Unexpected Happenings

For many print shops, 2022 was a tumultuous year full of unexpected twists and turns, from the after-effects of the Covid-19 pandemic to the Russia-Ukraine war and even weather issues such as Hurricane Ian. Despite these challenges, many companies managed to retain positive growth. In a State of the Industry (SOI) study by the PRINTING United Alliance, sales among 336 surveyed print companies increased 14.4 percent, on average, through the first three quarters of 2022.

However, operating cost inflation averaged 12.2 percent as prices significantly increased. These price increases to offset the inflation averaged 12.3 percent – factor in these price increases, and real (inflation-adjusted) sales saw a modest increase of 2.2 percent.

Things are beginning to stabilize, one of which includes supply chain issues that tied up a lot of companies from maximizing profitability. Some hope these issues will be resolved by the first or second half of the year, while others believe it’ll happen in 2024. Chances are this will also see a slow but steady improvement as 2023 progresses, but unexpected disruptions are still likely to occur.

On Prices and Wages

As projections look relatively positive, one aspect to look forward to is a slow reduction in prices of raw materials and consumables. Cotton and polyester are expected to see a normalization in prices: cotton, for one, has tapered back to 100c/lb in January this year, a 42 percent reduction compared to 2022’s peak and just slightly higher than the five-year average price of 95c/lb.

Meanwhile, polyester saw a decline of 22 percent, down from 9375 in June 2022 to 7880 in January 2023.

However, labor wages are increasing in China and Vietnam: from 2019 levels, manufacturing wages have grown 30 percent in Vietnam and 18 percent in China. With this dynamic of lower material costs but higher labor wages, prices for blanks made in China and Vietnam are likely to see little change throughout the year.

Back in America, many print businesses highlighted their struggle in dealing with staffing and labor shortages even as wages increased to retain their existing workforce. Over the past 12 months, average hourly earnings rose at an “annualized rate” of 4.6 percent in the three months through January. Even so, vacancies were left unfilled for months at a time. With the difficulty in replacing existing talent, companies must spend more recruiting and training new hires to replace retiring employees.

Consumer Spending

Hopefully, as consumer demand shifts back toward services from goods, price pressures will begin to ease. It’s predicted that higher interest rates will start reducing overall spending, but that can affect the unemployment rate, which currently sits at 3.4 percent as of January – a 53-year low. It will still be a while before these changes have an actual impact. Analysts estimate that unemployment will be up to 4.5 percent by the end of the year.

A person looking through a rack of clothing

For now, though, consumer discretionary spending is still strong. With incomes increasing across the board as companies seek to retain their workforce, consumer spending has increased by 24 percent year-on-year. Much of their spending has gone into travel, recreation, and dining out, among other things. It’s likely to see souvenir shops knocking on your door more often for custom T-shirts and other apparel/non-garment gifts.

Still, caution is advised. In a Federal Bank of New York survey, “household expectations of income growth” dropped from 4.6 percent to 3.3 percent. Many families must make necessary trade-offs to maintain their finances as prices remain high on housing, gasoline, and even daily groceries.

Concluding Thoughts

The increase in sales in January 2023 is a good sign, as it means a recession isn’t coming as soon as we thought. However, there’s still a great deal of uncertainty with the potential of rising interest rates to reduce inflation and slowly ease the economy into a more “stable” position. Print shops will need to be flexible as new challenges arise to stay competitive and profitable for the year ahead. Some strategies include increasing prices (a necessary evil, some would say), implementing cost-control measures, and making capital investments for greater automation and efficiency.