Inflation, inflation, inflation. As the cost of living goes up, your pay stays the same. The same goods and services that were worth ‘y’ are now worth ‘x’. Inflation affects everyone, even companies. So how does a business beat inflation? Joining me now to discuss how a company can beat inflation, we have CEO of Jamaica Teas and President, JMEA, John Mahfood.
Exporting, performance evaluations key to beating inflation
President of the Jamaica Manufacturers and Exporters Association, JMEA, John Mahfood wants more companies to start exporting their products and earn in United States (US) dollars.
Speaking on #MoneyMoves with Kaliah Reynolds recently, Mahfood said earning in US dollars can help businesses beat rising inflation which has already started to impact their performances.
Mahfood said several companies saw reduced profits and profit margins over the last quarter after failing to raise prices quickly to counter the higher inflation.
He said some have been hesitant to move prices with an expectation that the prices of raw materials and shipping costs will taper off during the first quarter of next year. However he said it appears that timeline might be longer than projected.
“When inflation is as high as it has been, it means that you have to find working capital to buy the goods that are to come and to replace those, you have to find even more money. You really have to bite the bullet and take the chance and increase prices and maintain your margin otherwise you’re going to fall behind,” he reasoned.
Mahfood said selling in US dollars would mean not having to adjust a product’s selling price as it would automatically shift when the dollar fluctuates. He said as the price of raw materials increases, the selling price would also increase, keeping margins consistent.
Mahfood argued that depreciation of the Jamaican dollar has eroded the wealth of the country and made some business people lazy.
He said movements in the foreign exchange market have blurred performance evaluations as sales going up in reality means a company had simply just kept up pace with devaluation. He said this has led him to review his own company’s performance against the US dollar rather than the Jamaican dollar figure.
“If we actually produced accounts in US dollars you would see that most of them wouldn’t be seeing any increase in profits per say,” he said.
Mahfood said beating inflation requires adequate management especially for the manufacturing sector which imports most if not all of its raw materials.
Meanwhile the JMEA President said companies that can’t export should be setting high goals for profits and sales that exceed the rate of inflation and expectation for the rate for the depreciation of the Jamaican dollar.
He’s also advised against hoarding US dollars as a means of hedging against inflation, reasoning that putting away that money in a bank would not be a good way of getting a decent return on funds, especially in the current low interest rate environment.
“If you put your money in US dollars and you get between 1% and 3% interest and you’re satisfied with that, it’s not productive money, it’s sitting in a bank somewhere benefiting a foreign country,” he said.
Mahfood said hoarding also hurts availability of the currency which also creates a challenge for the foreign exchange market and in turn inflation.
At the same time, he said he doesn’t think the Bank of Jamaica (BOJ) has done enough to manage the availability of foreign exchange. He’s also criticising their recent move to increase the interest rate, describing it as a mistake that may not have the desired effect on inflation.
“When the economy is weak and when inflation is not caused by internal factors we have another problem,” he argued.
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