Inflation halts business plans – Economy

the escalation of inflation in the country, with indices above two digits (accumulated in 12 months) since September last year, has made it very difficult for companies to plan even in the short term. With no forecast of how much the raw material or freight will cost in the following month, many of them are having to shelve important investments to improve the production process, change sales models and readjust prices more often during the year, so as not to compromise financial margins.

Some, however, have made several maneuvers to increasingly delay the transfer of prices and not lose sales. The fact is that high inflation causes a vicious cycle difficult for a consistent recovery of the economy.

High prices compromise the income of the population. Consequently, consumption falls and company sales decline. With lower revenues, companies have no option but to stop investing and reduce manpower, which increases the unemployment.

“It has been difficult to get the forecasts right”, says the co-president of the paperboard industry Papirus, Amando Varella. The executive says that, because of this difficulty, the company has made more price adjustments to customers compared to previous years, when this change occurred every 12 months.

In 2021, the company made three adjustments. This year, a new review has already been communicated to customers and should be implemented in June.

Finder, a manufacturer of relays – an electronic component used, for example, in power equipment, lathes, mills, alarms and building automation – was also forced to review its prices ahead of schedule.

Typically, Finder changes its table once, always at the end of the year. But now you will have to change the strategy. From June, the company will apply adjustments of up to 10%, according to the product line. Some components, however, will not increase.

The company’s commercial director, Juarez Guerra, states that he monitors the company’s costs daily and seeks mechanisms to maintain a balance in the accounts. “I have to keep one eye on the fish and the other on the cat,” he jokes.

The variation exchange it was also a factor that impacted the company’s margins, with a factory located in São Caetano do Sul, in the ABC region of São Paulo. The company receives most of the components for production from the Italian headquarters, says Guerra. “It is a good thing that now the exchange rate issue is improving.”

Companies try to hold on to pass-through costs so as not to lose sales

At Fluid Feedera manufacturer of water and effluent treatment systems in São Paulo, high inflation will delay the investment plan in new products, in the improvement of the production process and in more equipment

The budget for this year’s contribution was made in 2021 based on the projection of inflation at the time, around 5% – very different from the current rate. In April, the IPCA-15 reached 12.03% in the 12-month period, the highest rate in this comparison since November 2003, when it was 12.69%.

“All raw materials have gone up a lot in recent months, such as carbon and stainless steel, brass and copper, which impacted our costs,” he says. Francisco Carlos Oliver, commercial director of Fluid Feeder. “With lower-than-expected margins and financial results, we saw that the investment we would like to make will have to wait.”

Another reflection of the increase in inflation is in the planning of product delivery. With the increase in the price of freight, some companies have chosen not to bear this cost, since the price agreed upon in the purchase may not be the same on the date of delivery.

The co-president of Papirus, Amando Varella, says that before he adopted the CIF modality, in which the responsibility for the freight rests with the supplier. But, with the constant highs, it has chosen FOB, in which this responsibility is the customer’s. “Today, we are not in a position to maintain and fund this increase.”

But, according to him, this change has a negative side, which is the loss of control of the factory’s flow. In the FOB modality, the customer picks up the goods whenever he wants. “This increases insecurity in product withdrawal and can block the flow of the factory. Internal logistics are hampered.”

According to Varella, the scenario of price uncertainty is one of the worst for the day to day of companies. Almost all production items have gone up. In addition to pulp and freight, imported chemical reagents are under pressure because of supply problems, electricity soared and manpower also rose. “Our cost matrix is ​​under pressure and this generates price increases.”

At Bottom Up Telemetry, electronics industry of IoT systems in Recife (PE), contracts for the purchase of items for telemetry, tracking and sensors are closed two years in advance. Changing prices is now difficult. Customers are integrators who provide services to the public sector.

Frederico Bragaa partner in the company, says that, for the time being, the company operates with financial balance, but is preparing for an eventual negotiation with the workers’ union, which is in a “critical situation” because the wages readjusted at the beginning of the year are rapidly losing the purchasing power.

“We will have to talk and find a way, because, as I cannot pass on prices, it will be difficult to increase salaries.” The company has a large part of its raw material imported and, despite the exchange rate improvement, it still suffers from what Braga calls “pandemic inflation”, which resulted in chip prices four times higher than in 2020, and logistics prices up to eight times higher.

The same situation is experienced by the children’s and children’s footwear industry kid. Despite the high price of raw material, the company has not yet passed on the cost. “The market is sensitive to price changes. We set up a bold strategy to hold prices to gain more market”, says Sérgio Graciapartner of the company.

According to him, the concern with the rise in prices is to cause the fall in the purchasing power of consumers and this will have repercussions on the decline in sales. “May we be the last to raise prices.”

In the real estate sector, high raw material pressures builders

The construction industry has also suffered from rising inflation. The partner of Next Realty, Felipe Antunes, states that the National Construction Cost Index (INCC) was at 11.47% until March, but the price of steel, for example, had already risen more than 20%. According to him, the situation creates a dilemma for companies. If it does not pass on the costs, it compromises the company’s margin. And, if you pass it on, you can’t sell the property. With higher prices, consumers end up renting instead of buying.

Antunes says that, to try to get around the raw material price increase, he has tried to anticipate the purchase of materials. “We purchase the products, store them on site or rent an area for this purpose. But you have to have financial planning to make the disbursements.” Another measure is to speed up the process so as not to have delays in the work and increase the cost even more.