How the CPI Data Affects Your Business! INFLATION is Here!

Hey, everyone, it's Mike Andes, and you're listening to the Business Bootcamp podcast. Tonight, I'm going to be sharing very quickly what the cpi, or consumer Price Index numbers mean for your small business. Why is extremely important for the planning of the future of 2021 and beyond. Before we get into the show, though, a big thank you to today's sponsor, which is Gusto. If you haven't already, go to gusto.combootcamp today we're talking about inflation and the rising cost of labor. And one of the ways that you need to be able to attract and retain good employees is by having a. A great software to be able to track their hours, pay them well, as well as get them benefits. So you can do all of this through Gusto. Check them out today, go to gusto.combootcamp and try it out. Free for 90 days. All right, CPI data, if that is Chinese to you, it stands for Consumer Price Index. And what this basically is is data that's pulled by the government. I'm going to try to dumb this down. I know you could go a lot deeper on this, but it's basically prices that are pulled from the government of about the kind of what is the indicators of what could be inflation. Inflation was the cost of everything gets really expensive. You go to the store, things cost more. Everywhere you look, you're buying things. The cost of everything is more expensive. The cost of gasoline, and they look at all these different sectors and metrics in terms of different types of products, different types of materials and determine what is the percentage that things are getting more expensive and what speed are they doing that at. So what was expected for April 2021 was 3.6% increase. The percentage year over year increase was 3.6%, which was expected. It was expected because a year ago was April 2020. In April 2020, we were just figuring out what the pandemic was all about, what COVID 19 was. We didn't know if it was, you know, transmitted from the aliens or by air or by sneezing or should you wear a mask? Should you not wear a mask? We close down. Should we all, you know, bury ourselves underneath the ground? Like, no one knew what was going on. Everyone was. It was peak fear. Fear. And so when we're comparing April data, something to keep in mind is that we are comparing ourselves now versus, like, the worst time last year. So all the data in the next few months is going to be, in my opinion, skewed by the fact that a year ago, everything was different. We now know, I'm not saying that Covid, we beat it. I'm not saying that we. It's no longer here, whatever. I'm saying that we now understand a little bit more. We have vaccines in place, people are getting vaccinated. And whether or not you agree with that doesn't matter. The matter is, the matter of fact is that we have control on the number of cases and deaths, etc. So what, what the CPI data shows though is individual sectors. And if you looked at gasoline, year over year, gasoline was up 49.6%. The cost. The consumer price index, what is the cost to the consumer? 49%. The used car and used truck price was up 21%. This is huge. The cost of vehicles is a huge indicator of where inflation is going. Inflation again is just the cost of everything getting more expensive. Usually the value of the dollar coming down and the cost of all the materials and goods and services that we buy going up. Now get this. Now you've probably seen all sorts of memes about people saying that they're like millionaires because they have a few two by fours in the back of the truck in the past few months. So just since January 1st of 2021, the price of lumber has gone up 124. This is not year over year data. This, this one number I'm giving here, but lumber has gone up 124. Now I literally just talked to my contractor the past yesterday, today actually I talked to our contractor. We have a contract that's building the reset as well as planning for our headquarters and at Augusta. And I'm literally like pumping the brakes on construction because it's a matter of let's hope some of this craziness gets through the system because again CPI data lags, right? Like if there's a shortage in the supply chain, the price get it takes a while to get, you know, really affect the price of the end consumer. And so what we're seeing right now with lumber is just going through the roof. And so my construction estimates and my construction budgets have been revised. That is massively inflated over the past few months. So what does this mean for your small business? Number one, increased inputs and costs. All right, so the cost of all the goods and services you're buying, all the raw materials are going to go up. When the cost of fuel goes up, you're like oh, I'm buying bark mulch, I'm buying gravel. Like what's that got to do with all the CPI data and like a chip shortage and in China and the Suez Canal having a ship that's blocking world trade. Oh, that's not affecting me. At the end of the day, if the cost of transportation, that is fuel and gasoline goes up 49%, trust me, it's affecting everything. The cost of food is dramatically affected by the cost of fuel. If you're thinking about gravel and soil and mulch because you're a landscaper, that is being affected by the cost of fuel, the cost of transporting those goods to, to wherever you're at, your job site, your shop, et cetera. All right, number two, what does this mean for your business? I really think that when it comes to a lot of us now in the past 12 months, 24 months maybe you've done it for a long time, been invested in the stock market, I believe the next three to six months are going to be really rocky in the stock market because what's going to happen is like today, if you look at the stock market day, the s and P500, the NASDAQ, the Dow even slipping, everything was down because when the, when everyone thinks inflation is going up, traditionally that fear of inflation is going to bring down the stock market. People move into bonds. You saw the ten year treasury go up today, I. E. People wanting to buy bonds more secure. There's fear in the market. The puts, the cost of puts or people shorting the market. Today cost, those options went through the roof. In other words, people think that the market's going to fall massive amounts of fear because the inflation inflection points and the data points of CPI traditionally comes before we see inflation. And we see inflation, we see interest rates rise. And the past year interest rates have been like so far against zero. And the money printer has been alive and well with stimulus that there's a lot of fear in the market right now. I really feel like the next three to six months in the stock market are gonna be choppy. Okay. I feel like there's going to be a sustained rally and sustained high. What we're seeing in the real estate market, even if interest rates push up a bit simply due to the fact that there's a massive shortage of supply, there's no houses to buy and therefore that's why prices keep going up. But number three, how does it affect your business? The cost of labor is going up. I don't know if you noticed it, but in the landscape business course. Facebook group David posted one of the posts about Chipotle and it's very true. They raised their minimum wage from $13 to $15 an hour. This is a fast food restaurant, folks. And in all of our businesses, we're having to, we're having to pay more. I was driving by a McDonald's and they're, they're paying $100 as a signing bonus. When was the last time you saw yard signs being used by McDonald's to attract people and offer signing bonuses of $100? All right, so there's a labor shortage now, because guess what we, like we talked about the other day. There's this labor shortage caused by the fact that unemployment is so easy and great. If I can make 10, $11 sitting at home doing nothing, why should I go out and work 13, $14 an hour at a fast food restaurant if I can sit home, do nothing and make unemployment for the next several months? So there's less jobs being added, which means the demand for labor gets even greater. Because if the cost of goods are going up and things are selling off and everything's heating up in the market and we need labor more than ever, but yet we're constricting lab keeping people at home, what's going to happen? The cost of labor is going to go up. All right, number four. So we're talking about how does this actually affect your business? You need to have price increases, especially right now. If you have demand coming through your nose and there's people calling you for your products, your services, things are flying off the shelves. You can't keep anything on the shelves. You have a backlog. You have more work than you can ever handle. You need to raise your prices. Okay? And if you're in the lawn care landscape industry, you need to raise your prices. Your cost of your materials are going up right now. The cost of your fuel is going up right now. The cost of your labor is going up right now. You need to raise your prices. You need to improve and increase your markup of materials. You need to increase the cost of your dumping fees because guess what, that's going to be going up. You need to increase the labor rate that you're trying to achieve with your crew because you're going to have to pay more to keep those people. You're going to either get, you know, and you're going to say, well, I'm not raising my hourly rate, but you might have to give benefits. You might have to do signing bonuses. You might have to give referral bonus trying to keep people. That's a cost to the business. All right, so what is CPI data? Consumer Price Index. The this data is in. Is indicative of inflation coming. And I Feel like these are short term things. And I say short term. I think in six months, when we start comparing, like last, you know, August and September of 2020 compared to August and September of 2021, I feel like we're not going to be at 4.2%. I think it's probably kind of coming more around, you know, 2.5 or 2.3. It's going to be lower. And I think that will qualm some of these fears and these massive, you know, the stock market dropping and labor shortages and all the rest, I think that's going to slowly dissipate. I do not feel like we're going to have 10, 15% inflation numbers. I don't see that happening, in my opinion. That being said, these, we're not going to see negative numbers. These things don't go away. All right? The rate at which inflation is happening is jumping. We need to adjust our prices, we adjust our strategy, we make sure our margins are strong, we have a good labor force, a good workforce, and the only the best are going to survive this. The people can attract and retain great talent. The people that can cut costs. The people can keep profit margins high and not over leveraged. I feel like this is going to be a really squeezing moment the next six months for the small businesses of America. And knowing things like CPI data can have you plan for what's to come in the next six months. This is only getting heated up. I feel like in three months it's going to be worse. The labor shortage, cost of gasoline, like what happened with the whole data breach. And you're already seeing in certain parts of the country literally people lining up and filling up gas cans in the back of their car like this is happening. It's not about fear. I don't think it's going to be long term. But the people who get through this are the ones who are educated, know what's going on, have their no ducks in a row, are not over leveraged, don't have a bunch of debt, and they're willing to weather the storm at perhaps lower margins for now for the long term benefit and success of their business. I'm Mike Andes, Business Boot Camp podcast. We'll see you tomorrow.