But what does it mean for the creative agencies’ world?
It’s time to get real.
We talk about “real” wage increases, the “real” rate of interest, in “real” terms, after taking out the effect of inflation. This is the key mindset for dealing with inflation.
“There have been a few headlines on the theme of “back to the 70s” triggered by the rapid return of price inflation and the resultant increase in industrial unrest and financial hardship for those with a fixed income.
As a bona fide survivor of the 1970s, I have taken to wearing a knowing smile.
A large proportion of my time studying economics during those years at what was then called a polytechnic was spent on the subject of inflation and its consequences which, as a result of the fruitless efforts by various governments to contain it, we assumed would be here to stay. There are a few counter-intuitive things that I remember from those days...
- Firstly, it is a good time to invest. Typically, the rate of inflation will exceed interest rates by a much higher margin (currently by a factor of about 7 times (*)) so putting off investment decisions will inevitably increase the cost by more than the cost of finance and reduce return.
- Secondly, although the root causes of inflation are complex, the simple text book cause is that too much money is chasing too few goods and the laws of supply and demand are merely trying to adjust. If you are in the business of satisfying demand (i.e. you are in business) then a bit of excess demand is no bad thing and is better than the alternative.
- And thirdly inflation is not such a bad thing as long as you are anticipating it. I can remember being pleased back in the day to get an 8% pay rise, even though inflation was almost certainly going to outstrip it in the following months.”
(*) Relative to bank rates but if you’re lucky enough to have money in the bank, inflation is likely exceeding the interest you are receiving by about 180 times)
Nick Tomlinson, Managing Director at Paprika