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Pricing at the Peak

January 14, 2022

Inflation is top of mind for many business — how do you handle pricing at the peak of the business cycle and inflation cycle? Catch our newest TrendsTalk episode with ITR Senior Forecaster Connor Lokar to learn more.



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The below transcript is a literal translation of the podcast audio that has been machine generated by Rev.

Hello, everyone. Connor Lokar, senior forecaster here at ITR, back again for another TrendsTalk. With inflation top of mind for most folks, most businesses, most consumers, it's time to talk pricing and how to handle it at the peak as it relates it to the peak of the business cycle and the inflation cycle. Currently we are nearing the top of both the overall macroeconomic cycle, if we think of that typically with U.S. industrial production to quantify that here at ITR, and also the inflation cycle, whether we look at CPI at the consumer level or the PPI at the business level. Now, that does not mean that recession is imminent, far from it in both cases, but we're really transitioning or nearing the transition from accelerating growth trends, accelerating inflation trends, towards decelerating trends in both cases very soon.

A favorite management objective of ours for this transition point in the business cycle as we near that transition from the tail end of phase B into the infancy of phase C, that phase B being accelerating growth, phase C being slowing growth, really revolves around pricing and purchase decisions. What should you be doing? What should we not be doing? One of the things that we always tell our clients, this is a great time to lock in revenues or pricing contracts really at this point in the business cycle, and from your own perspective, also avoiding long-term purchase commitments and purchasing things or contracts, pricing contracts, that are quite frankly at a premium. So, at present, inflation rates are very high as are collective inflation expectations, particularly for this cycle, which makes for an excellent opportunity to take price. I'm sure a lot of folks did in 2021, probably multiple times in 2021, but probably we have the opportunity for one more here in early 2022 while demand is still red hot.

Folks are generally accepting, though not thrilled certainly with price increases, and it's imperative to move early here. I think that this time makes sense because obviously we want to protect our margins from rising costs, but also we don't want to be out of sync with the market, so if we try to catch up later on in this business cycle, pushing for pricing later this year in the second half of 2022, it's going to be more challenging. We're going to be deeper into phase C at that point. Slowing growth's going to be underway. Your customers are going to be feeling that. Price sensitivity's going to start to ratchet up. Product availability is going to be improving within the marketplace with your competitors, and customers are going to be less automatic buyers as they were for most of 2021 and they're going to become a little bit more discriminate shoppers. So, in trying to drive pricing at that point could put you out step.

On the purchase side, many probably have vendors approaching them right now, offering them long-term purchase contracts, which we generally want to avoid at this point in the cycle as everything is priced at a premium and the opportunity for discounting's pretty minimal at this point. Now, later this year, later in 2022 and particularly in the first half of 2023 as we approach that business cycle low, that's going to offer more attractive opportunities on the buy side either to accumulate inventory, lock in attractive lease rates, purchase capital equipment at discount among other opportunities, so on and so forth. So, just some pricing and purchase decisions to keep in mind at the peak here as we kick off the new year and approach a new phase of the business cycle. Thanks for stopping by. See you on the next one.


Since 1948, we have provided business leaders with economic information, insight, analysis, and strategy. ITR Economics is the oldest privately held, continuously operating economic research and consulting firm in the US. With a knowledge base that spans six decades, we have an uncommon understanding of long-term economic trends as well as best practices ahead of changing market conditions. Our reputation is built on accurate, independent, and objective analysis.