Tips for Consumers and Business to Combat the 40 Year Peak Inflation Rates

What is Inflation anyway?

In the most simplest of terms, Inflation is a decrease in purchase power due to high prices. An example of this could be a gallon of milk, which has a regular price of say $1, now requires $3 dollars. At a more technical level, inflation is an increase in prices, measured for a basket of goods that an average house hold consumes, thereby decreasing the purchasing power. 

What is the state of Inflation today?

Inflation currently sits at a 40 year high of 8.5%, as of March 2022. According to the consumer price index (CPI), food price have increased 8.8% over the last 12 months and gasoline prices jumped around 48%, compared to last year.  These increase in price imply that an average household in the US is paying ~ $327 more per month, as of March of 2022. Barring other factors, this sums to an additional $4000 per year, just for average basket of goods. 

From a comparison point of view, below are the inflation trends for the last few years:

  • U.S. inflation rate for 2020 was 1.23%, a 0.58% decline from 2019.
  • U.S. inflation rate for 2019 was 1.81%, a 0.63% decline from 2018.
  • U.S. inflation rate for 2018 was 2.44%, a 0.31% increase from 2017.
  • U.S. inflation rate for 2017 was 2.13%, a 0.87% increase from 2016.

What Consumers can do to manage these risks or high prices?

There are things that consumers can manage to curb some of these high costs. We'll share 3, that we've seen generate the most value:

1. Buy a larger quantity, which has a lower cost per unit: 

In most big box stores like Walmart, cost per unit is listed on the price display. As a general rule of thumb, the lower cost outweighs the higher price and theoretically it should last longer, due to higher serving sizes. Another benefit is reducing the number of trips (or order ins), would decrease both energy and delivery costs. Net-Net, spending twice a month vs four times a month becomes cost effective.

2. Manage your Needs vs Wants: 

Everything that is want should be discarded as wasteful spend and focus on needs. Alternatively budget for both needs and wants, with a cut down on wants. Additional benefit of this approach is an increase in savings, which can both be utilized as investments or rainy day funds.

3. Stop Borrowing on Credit Cards: 

According to, an average credit card interest is around 16.26%. That's double the current inflation rate. Whilst its tempting to buy on credit cards, using the "WWMMD - What would M Mahmood Do". This anecdotal acronym will remind of "Needs vs Wants" and hopefully empower you not to give in to temptations.

What can Business do to ensure their margins stay intact?

Whilst cost of living are constantly rising and most business worry about cost of capital and discounted cash flows (DCF), there are opportunities to maintain and even grow margins during these trying times. Here are couple of recommendations:

1. Re-Visit and Re-Invent your Business Models: 

First and foremost, business should constantly review the spending habits of their target consumers. The next of Couse is the what cost factors are in play to produce the product or service. If the cost does not align with the consumers buying habits, then the business won't survive for long, as their are no profit margins to sustain the business. Therefore, businesses need to re-visit their current business models and align them with customer sentiments. 

2. The Value Chain fit: 

The position in the value chain is critical for business to understand. The more value a business can create as part of the value chain, the higher the benefits. This is also where vertical integration can play a key role. 

Can you give me an example of how this all comes together?

Whilst there are many good examples, we'll share the story of a company we've kind of followed since their startup - Rent The Runway (RTR). RTR genesis idea, as usually told by Jennifer Hyman, is when her sister had to go a wedding and bought an expensive dress, possibly for a one time use. This spawned a whole new business, where consumers can rent high end brands and accessories with a click of a button. 

According to Hyman, "We're entering into one of the strongest environments for rental we've ever seen,". She continues, "The inflationary environment is basically a competitive advantage for Rent the Runway."

RTR is projecting about 2 million weddings in 2022. Weddings these days are an elaborate scheme from venue planning, to catering food, lavish cakes and so on. For RTR, wedding also means a need for clothes and accessories. RTR members pay between $94 to $235 per month, to receive between 4 to 16 different items of designer clothing or accessories. Users can also make one-time rentals for four to eight days and have the option to buy items on RTR website at a discount vs paying full sticker price.

With consumers seeking both value and stability (i.e cost), RTR has aligned its business model with customer sentiment and expectations. With inflation rising, RTR's business model has become a competitive advantage, as consumers look to refresh their wardrobes to adapt to hybrid work schedules and prepare for social events.