If you are monitoring Bloomberg or if you are listening to any newscast today, you cannot escape the topic of inflation and how it continues to affect the economy. So how will this inflation affect parking?
Inflation is defined as the increase in prices for goods and services over time. It implies a loss in the value of money over time, as it erodes the purchasing power of a currency. The largest contributors to increased prices are food and fuel. From the economist perspective, as prices continue to rise, consumers get squeezed. If inflation continues, it can undermine economic recovery.
In addition to the increases in the cost of food and fuel, we are currently experiencing upward pressure on wages. Many employers trying to attract and retain employees are forced to raise wages to remain competitive. Unfortunately, the increase in wages and the subsequent upward pressure on price to maintain profits has a circular effect.
For both private and public entities in parking, these factors have detrimental effects. As wages continue to rise, the expenses associated with providing services in parking will rise as well. Consequently, the rates for on and off-street parking charged by agencies, universities, and commercial properties will have to increase to compensate. Owners will be forced to consider reductions in budgets to accommodate the increased expense levels, which could ultimately negatively impact service levels.
Additional negative consequences of inflation for the parking industry could be the effect on construction of new facilities, remediation, or preventative maintenance of existing facilities. If these activities are being financed by debt, they may be impacted by one of the monetary levers pushed to slow down the effect of inflation – raising interest rates. If that happens, the cost of money for the debt will have increased due to the higher interest rates. It will require more capital to service the debt. In the case of remediation or preventive maintenance, higher wages will require increased cost to provide these services.
To put today’s situation in perspective, let’s review a little bit of history. Inflation peaked in 1980 at 14.6%. That is almost twice as high as current estimates. In fact, inflation was high for the better part of a decade. Current unemployment has been reduced from 15% early in the pandemic to around 4% now. Mortgage rates in 1980 were 18%. So, even if the Fed increases interest rates over the next year, we won’t reach the levels of the 1980’s.
As a nation, we recovered have recovered time and time again from economic downturns, and we can do it again. How can we better position ourselves to ride out these challenging times? Here are some tips that companies can use to help weather the storm of inflation:
- Differentiate between strategic and non-strategic spending. Whether looking at investments or cost-cutting tactics, really examine the outcomes you are hoping to achieve and whether the proposed tactics accomplish those goals. Use consistent, accessible financials to determine the ROI on decisions, and don’t act from an impulsive position. Knee-jerk reactions can be counterproductive.
- Examine the true drivers of spending. Examine what you are spending money on, how much you are spending, and why you are spending it. Are there better ways? As examples, can you partner with other companies to achieve bulk-buying discounts, or consider switching vendors for services to gain better pricing? Are there software programs that can be eliminated and replaced with newer technology?
- Evaluate consumption. What is your company using for operations that can be eliminated? Where are there redundancies in purchasing and consumption that can be reduced? Appointing someone to be responsible for evaluating consumption across your organization and looking for ways to streamline can result in significant current and future savings.
- Re-evaluate your work. During challenging economic times, do you need to offer all the services you are currently offering? Reexamine your work model and product and determine what adds the most value and what may offer the least. Can you put the lower-performing services on hold and focus on those that have the most impact to your bottom line?
- Investigate Technology. While the upfront investment in new technology may be high, both short and long-term benefits can often make the investment a sound one. Are you using the most current and effective technology for your business? What impacts can implement new technology provide?
The effects of inflation require everyone to carefully examine the choices that we make. Successful organizations will be the ones that do their own internal assessment of how they are providing services and find creative ways to decrease costs while preserving service levels. More than ever, improving processes and applying the newest technology to our advantage will become paramount to continuing to deliver quality services.