Inflation and Foreign Trade
Current Market Conditions
Late last month, the United States Federal Reserve increased interest rates three quarters of a percentage point in an effort to slow inflation. This news comes after the most recent CPI report, which indicated that the CPI increased by 0.4% for all goods during September. Both the UK and US central banks have inflation targets of 2%, but current market conditions suggest that it could be a long and painful road to meet that goal. This blog will discuss how inflation impacts global markets, and how companies can mitigate risks arising from price hikes.
How Can Inflation Impact Foreign Trade?
In a recent report published by Beazley, it was found that inflation is now a dominant global threat, with 65% of American company owners (55% global company owners) believing that they lack the required skills and resources to deal with rising costs. Price hikes and economic uncertainty are contributing to civil unrest as well. For example, Sri Lanka recently declared a national emergency after violent protests broke out over the country’s economic crisis. The report also indicates that countries like Egypt and Turkey are especially vulnerable to the secondary effects of price increases, since they are heavily reliant on Russia and Ukraine for energy and food imports.
Inflation and rising global tension will most likely continue to cause an uptick in global insolvencies, which will increase the risk of doing business overseas. Bankruptcies have risen especially in the UK, where the insolvency rate hit an all time high according to Reuters. The data indicates that 4,896 companies became insolvent during Q1, 2022, up from 4,615 the previous quarter. This is mostly due to surging operating costs and the removal of pandemic-related support loans.
How Can Companies Mitigate Inflation-Related Risk?
Trade credit insurance is an effective strategy to prepare for the risk of customer insolvency. By using trade credit insurance, companies can offer open account payment terms, borrow against the insured A/R to finance their ongoing working capital needs, and confidently grow the business knowing that a majority of the invoice amount will be collected, even in the event of a buyer’s non-payment. For more information on the benefits of trade credit insurance, visit our website or contact email@example.com