Inflation is coming. There is no doubt about that. I don’t want to go all financial-technical on you, but the Federal Reserve’s announcement of Quantitative Easing-2 (QE-2) that the Fed will print $600 billion and pump it into the economy virtually guarantees there will be more inflation than we have already seen.
Consider the following:
- Cotton prices at the mill are up 90% to an all-time high. This will soon be reflected in clothing prices.
- Corn prices are up 30% in the past year. Corn is used in the manufacture of thousands of industrial and consumer products.
- Oil is now around $80 a barrel. I have seen several credible forecasts that predict it will be over $150 barrel within the next year.
- The US Dollar has rallied a bit in the past week or so, but the long term trend is still down. A falling dollar makes imported products more expensive. Before long all those dollar stores who import cheap Chinese junk will have to start calling themselves Two-Dollar Stores.
So it is just a question of time –probably after the holiday season, that material prices will start to be reflected in product costs. This means the products you buy to resell on eBay will cost more. But in a slow economy it will be virtually impossible to pass those costs on to your buyers. The result –even smaller margins –or worst case –no margin at all.
Historically when you get inflation, wages are the last thing to rise. So you always go through a period of 3 to 6 months while wages catch up. This is the period of time that is the most difficult for product sellers.
So what are some strategies to keep your head above water during this period?
- If you have the cash, or can borrow money, stock up on products now before prices go up. I almost never recommend going into debt to buy products, but if you have a product you are 100% certain will sell, then this is a good strategy. Also during times of inflation, you want to be a debtor rather than a lender –as you will be paying off your loans with cheaper dollars.
- Look to getting into used products. If clothing prices rise 30%, the sale of used clothing will skyrocket. And the margins on used products are better anyway.
- Think about getting into information products. Once you develop your product your product costs are tiny. Margins on most information products run in the 90% range.
- Look into affiliate marketing. Scroll down to the previous blog post to learn about how you can set up niche websites and blogs selling Amazon products. This is really sweet as you have zero product cost.
So those are a few ideas for surviving in business. If you have any other ideas, please leave a comment so I can share them with my readers.
And, you may want to give some thoughts to surviving inflation in your personal life. While you are shopping for Christmas give some thoughts to buying things for yourself (that you would buy anyway) and buy them now –or on the after Christmas sales at low prices before they go up.
Food prices are already rising and could skyrocket in the months ahead, so this might be a good time to take a lesson from the Mormons and stock up on food. I found a website that will show you the best way to do that. Its called The Survival Mom –and yes its one of those survival blogs –but there is some great information about how to buy and store food. Another good site is The Emergency Kitchen.
Whatever you do –don’t do nothing. I am old enough to remember the hyper-inflation we had under Jimmy Carter. We had two toddlers in the house and had just bought our first home. The mortgage rate was 11.2% and we were happy to get it as rates went up to 14% before they started coming down. As you can imagine we were living paycheck-to-paycheck. So when food, milk, gas and clothing prices started to rise we were really screwed. No movies, no eating out, really cheap Christmas gifts –all our money was going just to eat and commute to work. So don’t think it can’t happen again – it can.