The ongoing coronavirus pandemic has had dire effects on world economy, creating bottlenecks in supply chains, rearranging the labor market, and increasing inflation, with the effects expected to be felt well into 2022. What are the most obvious changes? Find out with us.
Supply-chain bottlenecks cause inflation
Last year, the pandemic and the lockdowns all over the world rearranged the labor market and the economy. The disruption of processes that used to be norm created inflation, as fewer goods being available increases the prices. The 40% increase in global food prices hit low-income countries the hardest since the start of the pandemic.
Normally, the Federal Reserve plans for a 2% inflation. However, economists on average see inflation at 5.25% in December 2021 in the U.S. In comparison, in the G20 countries the OECD expects inflation around 4.5% at the end of this year. Accordingly, the current 5.5% inflation in Hungary is in line with global trends.
Nevertheless, the increasing availability of vaccination and the adaptation to new market patterns gives grounds for hopes in the gradual decrease of inflation to 2.4% in the U.S. and 3.5% in the G20 by the end of 2022. While experts say such a sway is almost predictable, it is understandable that the general population is worried with the decrease of the spending power of their wages. At the same time, experts point out that making the public understand what to expect is essential in avoiding the snowballing of inflation.
Movements in the labor market
As many businesses were adversely affected by the pandemic (and the lockdown), unemployment grew. At the same time, there seems to be a labor shortage in many industries. This discrepancy is due to the previous disproportion of the labor market. The landscape of labor demand went over a rapid and radical change, which the labor supply has not had chance to follow. Unfortunately, it takes more time for this field to even out. Until then, the apparent labor shortage will necessarily fuel supply-chain disruptions and inflation.
Hungary in the pandemic
With the various government efforts put into the stimulation of the economy, Hungary expects significant economic growth in 2021 (which is also reflected in the refunding of personal income tax to those raising children, a HUF 600 billion cut to the Treasury). At the same time, the government aims to ensure that everyone working can earn a living wage (while compensating for the loss of spending power in the economy), which means that the minimum wage will be raised again starting from January 2022 (just like every year). Businesses should be prepared for securing the revenues that can cover the increased salary costs.
Even during the pandemic, both the number of work permits issued and companies operating in Hungary grew, which shows that investors still consider Hungary an attractive destination for moving their business to Europe and setting up their EU headquarters, especially with the high local vaccination rate (over 60%),
Choose your accounting partner wisely
Inflation also means that COGS (the Cost Of Goods Sold) is increasing dramatically. To compensate for that, companies must re-calculate their wholesale and retail prices, together with their profit margins, which is a very delicate task. Setting too high prices will decrease demand, while going too low will decrease margins. To do this optimally, in an informed way, you will need precise, accurate accounting data on which you can base your decisions.
In line with this, in the midst of uncertainties it is essential to work with an accounting partner you can always rely on. Helpers Finance provides accounting and bookkeeping services to small and medium sized companies, with a special expertise in handling foreign-owned businesses. If you want an accounting partner that takes care of compliance and supports your work with reporting so you can lead your business in the right direction, contact us through our form, send an email, or call our office on +36 (1) 215–0712.
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