The Visionaries – Wealth, inflation, and the financial climate

Categories:

How are inflation and rising costs of living affecting private clients in your jurisdiction?

In the United States, and the State of Oklahoma, inflation and the rising costs of living are having a pronounced impact on private clients, especially entrepreneurs, who represent essentially all our firm’s clients. The nature of these economic pressures is two-fold, as they affect not only the personal finances of business owners but also the operational aspects of their enterprises.

One of the direct consequences of inflation is the increase in interest rates as the Federal Reserve attempts to cool the economy. For entrepreneurs, this translates into higher borrowing costs, affecting everything from business expansion plans to everyday cash flow management.

The inflationary environment also impacts the cost of labour and materials. Entrepreneurs are facing a double-edged sword where on one side, the workforce demands higher wages to keep up with the cost of living, and on the other, raw materials and goods necessary for business operations are becoming more expensive. The cost of labour was already at recent high levels in most industries as a result of changes to the workforce post-pandemic.

With the cost of doing business escalating, profits are being squeezed. Entrepreneurs must now navigate the challenging terrain of passing on costs to consumers, who are also dealing with their own financial constraints, or absorbing the costs, which can erode profit margins. The capital allocation towards growth initiatives or investment in new ventures must be re-evaluated in the face of higher interest rates and uncertain economic forecasts.

The United States and the State of Oklahoma are weathering the economic conditions more favourably than most of their larger international trade partners due to United States Federal Reserve Policy management and the strength of the U.S. Dollar. A large portion of our firm’s clients are exporters, or have multinational operations, so the economic considerations of other jurisdictions have a substantial impact on their overall profitability and economic wellbeing.

Many individuals in the United States have a substantial amount of their wealth in their home. Current mortgage interest rates, which are much higher than they have been for many years, have caused people not to sell their current homes and replace them with a disadvantageous mortgage, which has drastically reduced the inventory of homes on the market and kept many people from being able to buy a first home.

In the State of Oklahoma, the prices of oil and natural gas are a double edged sword, due to the significant footprint of the industry on the State, as high prices are good for business and the related taxes good for Oklahoma State revenue, but high prices represent a negative for consumers.7

Read more in our brand-new publication, The Visionaries