Utilities, like power generation and distribution, are greatly affected due to their dependence on oil and gas. However, they may be able to manage impact by passing on costs, but within the constraints of regulatory price controls.
By contrast, the consumer goods industry is exposed to the high cost of energy indirectly, as many of their manufacturing processes rely on food, raw materials and resources from directly impacted industries. Food, beverage and consumer durables are likely to see significant disruption due to their reliance on agricultural commodities and raw materials; together, Ukraine and Russia supply 26% of global exports of wheat.8 The food, beverage and consumer durables sector also is highly price-sensitive and vulnerable to consumer switching.
Other industries may suffer cost pressure even more indirectly. For example, the health industry is not a heavy
direct user of energy or raw materials, but much of its cost structure depends on employee compensation. As
prices of products they consume rise, workers will demand higher wages to try to maintain their purchasing
To identify your specific challenges:
- Track market/industry insights
- Watch for internal indicators that point to the three types of economic cost pressures
- Consider how location factors in
Remember that challenges also vary by geography and industry. Areas that rely on production from other regions
may be more exposed to energy and food inflation. Other geographies may have social, political or institutional
constraints that prevent them from handling inflation shocks, resulting in volatility.
The US, meanwhile, would primarily be affected by higher oil prices and their knock-on effect on household wealth and consumer spending. In the event of a protracted impact scenario, Oxford Economics estimates that US GDP could decline relative to pre-war estimates by 1.0 percentage points in 2022 and 0.6 percentage points in 2023.
From insight to action: Use technology to help weather the storm
Will I lose my customers if I pass on the cost of inflation? Will my competitors price me out of the market? How
will I pay my employees? What’s the best procurement strategy for a highly inflationary environment? Will I
remain competitive overall?
Leaders may need to make tough choices quickly. Anticipating change and planning for a range of scenarios is
essential, and the more intelligence, the better.
“Intelligent” enterprises use integrated, cloud-enabled planning and
performance analysis tools to improve how they capture and analyze data. From there, they can garner valuable
insights to fuel decision-making around critical issues, including:
- Sourcing and procurement
- Labor costs and compensation
- Input costs
- Supply chain disruptions
- Competitor pricing
- Customer relationship management
- Consumer spending power
- Vertical integration
Trade-offs: What to expect and how to address them
The optimal strategy improves the company’s data gathering and analytics capabilities and uses technology-enabled
solutions to calibrate the best response to the difficult trade-offs that inflation demands: