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Inflation has been top-of-mind in recent years as prices across categories soar and consumers and businesses continuously try to adapt and overcome a rapidly changing economic environment. While the surging inflation rates have cooled, and the Federal Reserve is making efforts to raise rates and lower inflation, the effects across consumers and business owners are still prevalent.

While in straightforward terms, high inflation simply means higher prices, the ripple effect of this affects businesses and consumers in profound ways. From rising debts to altering shopping habits, to skyrocketing operating costs and impacts on business growth attitudes and morale, the effects of recent soaring inflation will have a profound impact for years to come.

Beyond the headline-grabbing price hikes, a hidden narrative unfolds, painting a picture of how inflation subtly transforms everyday lives and economic landscapes. This expanded narrative delves into the lesser-told impacts of inflation, exploring its far-reaching consequences on consumer behavior, business strategies, and the very fabric of our society.

Household Savings Are Falling, Debt is Rising

Besides rising prices impacting where and how consumers spend their money, inflation has affected long-term investment opportunities. Simply: savings are down, and debt is rising. As wages haven’t kept up with inflation, many are driven to use loans and credit cards to pay for necessary products and services.

According to Medallia, 30% of consumers have more current outstanding debt as of June 2023 compared to the beginning of the year and 50% of households are either just barely making ends meet or are unable to do so, up from 40% in August 2021.

Inflation often exacerbates existing economic disparities. Low-income households, already struggling to make ends meet, are disproportionately affected by rising prices, further widening the income gap and perpetuating a cycle of poverty.

The Erosion of Purchasing Power

Rising prices outpace income growth, creating a squeeze on household budgets. Individuals are forced to prioritize essential needs, sacrificing discretionary spending on non-essentials like entertainment, travel, and even healthcare. This shrinking discretionary budget impacts not only personal well-being but also industries reliant on these expenditures.

Shopping Habits Are Changing and Consumers are Buying Less

While we’ve discussed that consumer shopping habits are affected by inflation, we haven’t discussed exactly how that sentiment manifests. While you can’t make general statements about every individual’s shopping habits, trends are emerging that highlight the impact on shoppers.

Rising inflation means that overall, consumers will spend less. Shoppers are prioritizing purchasing staples rather than luxury items – think only buying groceries, necessary home supplies, etc. instead of buying a new television. Inflation also impacts which staple goods are being purchased. According to J. P. Morgan, “Cash-strapped consumers are also trading down to own- or private-label goods—products sold under a retailer’s name, typically at a lower price than their branded counterparts—as a consequence of inflation.”

Additionally, the customer experience plays a much larger part in where individuals are choosing to shop. Even in the face of rising prices, a brand that delivers an exceptional customer experience will garner attention from consumers.

Intergenerational Impact

The long-term effects of inflation go beyond the immediate challenges. Young adults entering the workforce face higher living costs and potentially stagnant wages, hindering their ability to build wealth and achieve financial security. This creates a ripple effect impacting future generations.

Social Unrest and Political Instability

Prolonged periods of high inflation can contribute to social unrest and political instability. Frustration with economic hardship can lead to protests, strikes, and even political upheaval. It is crucial to address the root causes of inflation and implement policies that mitigate its negative consequences.

The Impact on Business: Higher Utility, Transportation, and Equipment Costs

On the flip side, inflation affects businesses in other similar ways. The costs of materials, products, and services increase, creating an environment where prices need to reflect the higher cost of production, employees increase pressure for additional compensation, and general expenses to keep the lights on keep growing.

These pressures manifest in different ways. As food costs increase, for example, restaurants may resort to buying lower-quality stock or simply lessen the customer experience with smaller portions or higher prices.

Additionally, inflationary pressures can exacerbate pre-existing supply chain disruptions, leading to stock shortages, production delays, and increased costs.

The Adapting Attitude of Businesses

Inflation affects the trends of businesses in much the same way it affects consumers.

According to Forbes, “…higher costs of services can affect the amount of cash you have on hand. Cost increases might force you to forgo any large expenditures while cutting everywhere you can. Inflation might make you think twice about expanding.” This creates an entire shift in attitude as a business owner. Rather than thinking about growth, you’re thinking about where you can cut or maintain expenditures – about how you can preserve the customer and employee experience while also making the cuts necessary to keep your doors open.

In the long term, inflation can affect a business’s daily, annual, and programmatic objectives. Businesses feeling the pressure of inflation won’t take financial risks, will spend less on marketing, and may even delay product launches. This attitude shift doesn’t just affect the present initiatives, but we will likely see the ripple effect of this period for years to come.

Employee Morale

We can’t discuss inflation without discussing layoffs, and we can’t discuss layoffs without discussing employee morale. It’s a given that as costs soar and affect a business’s bottom line, making cuts to the workforce, freezing hiring, and even making changes to compensation is not an uncommon occurrence. All of these events play a heavy role in changing the employee experience and engagement.

Employees feeling the pressure of impending layoffs or having experienced a cut in compensation will inevitably transfer that stress into the workplace. Additionally, employees who have survived a layoff will be experiencing the guilt and anxiety that accompany that. With the combined financial pressure at home alongside workplace stressors, inflation undoubtedly makes an impact on employee morale, engagement, and overall satisfaction.

The constant pressure of rising costs and financial strain takes a toll on mental health. Stress, anxiety, and even depression can arise as individuals grapple with making ends meet. These impacts ripple through society, affecting work performance, relationships, and overall quality of life.

.The impact of inflation extends far beyond the price tag. It shapes individual choices, business strategies, and the very fabric of society. While the recent inflationary spike may have eased, its effects will continue to be felt for years to come. Recognizing the full scope of its impact, from the individual struggles to the broader societal implications, is crucial for building resilience, fostering empathy, and crafting effective policy responses that prioritize not just economic stability but also human well-being in the face of rising prices.

At JMJ Phillip Group, our firm has unmatched insights into workforce and labor market dynamics – especially as they relate to the manufacturing, supply chain, and technology sectors. If you have any hiring needs or have any questions regarding insights shared in these articles, I invite you to reach out to me at Dennis.theodorou@jmjphillip.com.  

Building great workforces is challenge and once an organization finds the right individual to join them, employee retention then becomes a critical factor in organizational success. As we all know, tenure – especially among more mature workers – has been falling for years. As such, businesses are constantly seeking ways to attract, engage, and retain top talent, but a persistent challenge arises from a phenomenon known as “candidate bounce.” This term, borrowed from digital marketing, refers to the situation where new employees leave their positions prematurely, often due to unmet expectations.

The Root Causes of Candidate Bounce

The reasons for employee bounce are multifaceted, often stemming from a misalignment between an employee’s expectations and the realities of their work experience. This misalignment can occur in various aspects of the employment journey, from the initial hiring process to the ongoing work environment.

1. Misrepresentation of the Job Role: During the recruitment phase, job descriptions and interviews often paint an idealized picture of the role, emphasizing the positive aspects and downplaying the challenges. However, the reality of the job may be far different, leaving new employees feeling deceived and disillusioned.
2. Unrealistic Company Culture Expectations: Employees often form preconceived notions about a company’s culture based on their interactions with recruiters, company websites, and social media. If these perceptions don’t align with the actual work environment, employees may experience culture shock and feel dissatisfied.
3. Oversold Growth Opportunities: New employees often join an organization with aspirations for professional development and career advancement. However, if this growth opportunity is oversold, employees realize that they have, in fact, not joined a high-growth company which can lead to bounce.
4. Inadequate Onboarding and Training: A smooth and effective onboarding process is crucial for helping new employees acclimate to the company’s culture, understand their roles, and develop the skills needed to succeed. Poor onboarding can lead to frustration, confusion, and a lack of engagement, increasing the likelihood of leaving.

“The company culture piece is important when it comes to candidate bounce and we see it often with companies we work with,” says Kane Carpenter, Managing Director at Daggerfinn, a boutique employer branding and company culture consulting firm. “Too many companies have oversold their culture over the last few years, in an attempt to attract candidates in an increasingly-competitive hiring landscape, and the ramifications of this is not only candidate bounce but also a failing of culture internally. No one knows what the company’s value proposition is anymore because they live and breathe one thing, and all of their marketing speaks to a different reality.”

The Consequences of Employee Bounce 

Employee bounce can have significant consequences for both employers and employees. For businesses, it can lead to:

1. Increased Recruitment Costs: Replacing an employee, including the time and resources spent on recruiting, interviewing, and onboarding, can be costly.
2. Reduced Productivity: The constant turnover of new employees disrupts workflow, slows down projects, and ultimately diminishes overall productivity.
3. Damaged Brand Reputation: A high turnover rate can damage a company’s reputation, making it more difficult to attract and retain top talent in the future.
4. Loss of Institutional Knowledge: As employees leave, they take with them their knowledge and experience, which can hinder the company’s ability to innovate and adapt.

For employees, the consequences of bounce include:

1. Financial Setbacks: Severance packages may not compensate for the lost income and benefits associated with a new job search.
2. Uncertainty and Anxiety: Navigating the job market can be stressful and time-consuming, leading to anxiety and uncertainty about the future.
3. Lack of Professional Growth: Moving from job to job without staying long enough to gain meaningful experience can hinder career advancement and professional development.

Strategies to Mitigate Employee Bounce

To address the issue of employee bounce and foster long-term employee retention, organizations need to adopt proactive strategies to align expectations with reality. Here are some key measures to consider:

1. Honest and Transparent Communication: From the initial recruitment stage, be open and honest with candidates about the job requirements, company culture, and growth opportunities. Avoid exaggerating or misleading language.
2. Provide Realistic Job Previews: Enable candidates to experience the work environment and culture firsthand. Encourage shadowing current employees or offering virtual tours of the workplace.
3. Invest in Employee Development: Create a comprehensive training and development program that supports employee growth and helps them reach their full potential. Offer opportunities for mentorship, skill-building, and cross-training.
4. Foster a Supportive and Inclusive Work Environment: Promote open communication, collaboration, and mutual respect among employees. Ensure that everyone feels valued, appreciated, and heard.
5. Regular Feedback and Recognition: Provide regular feedback to employees, both positive and constructive, to help them identify areas for improvement and recognize their accomplishments.
6. Address Issues Promptly: When concerns or dissatisfaction arise, address them promptly and effectively. Create open channels for communication and encourage employees to bring forward their feedback.
7. Recognize and Reward Loyalty: Appreciate long-serving employees with recognition, rewards, and opportunities for advancement. Foster a culture that rewards the right activities.

Candidate bounce is a costly issue for businesses, as it can lead to wasted time and resources spent on recruiting, onboarding, and training new employees. By taking steps to align expectations with reality, organizations can minimize candidate bounce and attract, retain, and develop top talent. By prioritizing transparency, honesty, and a positive work environment, businesses can create a workplace that attracts and motivates employees, ultimately contributing to their long-term success.