Rising raw material and energy prices will hurt most businesses

Rising prices of raw materials and energy, as well as rising inflation, have a negative impact on the liquidity of most companies, but there are also those who benefit from this situation, writes Business and Finance monthly.

According to Milojko Arsić, professor at the Faculty of Economics in Belgrade, the share of energy and raw material costs in the company’s overhead, long period of high prices, as well as the company’s ability to increase the prices of its products to the detriment of its customers, will all affect the ability of companies to deal with the current situation.

“The rise in energy and raw material prices mainly affects companies that consume these things in significant quantities in production and cannot increase the prices of their products, as well as companies that face a drop in sales or demand after the prices of their products have risen,” Arsic explained, but he also pointed out that there is another group of companies that are potential “winners”.

According to him, companies involved in the production of raw materials, such as producers of cereals, fruit and vegetables, and producers of base metals, such as copper and iron, can benefit from the price increase. However, he warns that the potential benefits of higher prices this year have been reduced in the case of agricultural products, which have experienced a sharp drop in yield due to drought, while higher energy prices have reduced the benefits for copper and iron producers.

According to Arsić, high inflation has a negative effect on the overall economy and, if it lasts for a longer period, stagflation is very likely to occur, i.e. a situation where economic activity stagnates while inflation remains at a high level. On the other hand, he noted, the problems in the market for energy, metals, chips, international transportation and others that the domestic and global economy is facing cannot be solved by printing money or increasing demand through fiscal expansion.

“If inflation remains at a high level for a long period, it is very likely that interest rates will rise and thus the company’s operating costs will increase. Any rise in interest rates would negatively affect liquidity, because companies’ liabilities have increased significantly in recent years,” Professor Arsić concluded.

(Nova, 06.12.2021)


This post is also available in: Italiano

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