Thank god for inflation! And what has this to do with Outsourcing?

Thank god for inflation! And what has this to do with Outsourcing?

The media and press are generating scare headlines about the British Consumer Price Index (CPI) having reached 4.5% with every indication it still has room to rise. Virtually all comments state that this level is terrible and few believe that the Bank of England is right in expecting that CPI will gradually drop to 2%.

Question 1: Is a CPI of 4.5% when the base rate is 0.5% truly a bad thing?

Question 2: What does this mean for UK business and Outsourcing?

Our answer to the question 1 is that the 2008 recession is far from being behind us and therefore, moderate inflation is not just good, it is a must. Liquidity is far too high, interest rates are extremely low and therefore it is a wonderful thing for Britain to finance its debt at a rate significantly below inflation. That is the best stealth tax imaginable! Imagine what the British deficit would be if the country had to pay 5% or more per annum on its mountain of debt! The negative is that savers and pensioners are paying for this but, when you need money, and all Western governments need lots of it, you have to go where the money is.

Furthermore, and without making Britain an example of smart monetary policy vs. Japan, and assuming the world economy will improve (and it will), then inflation will surely accelerate but, at that point the Bank of England has 99.5% of its power dry. The Bank has demonstrated sure hands to fine tune deflation before.

A first answer to question 2 is that it is about time companies recognise that the world has changed – and forever. Boards and executive committees need their own “Arab Spring” and to think creatively about the complete value chain and scope of any transformation needs, and to be far more holistic than in 2007-8. The growth of social networks affects all, the effective deployment of Electronic Resource Planning (ERP) systems across supply chains has become table stakes and increasing speed everywhere and in everything is a must for survival.

In our world, outsourcing is all too often subject to a slow process with long RFIs (requests for information), protracted RFPs (requests for proposals) which take a lot of time and money without delivering value or doing so too late and often in a way irrelevant to the immediate business needs. By contrast, a growing number of firms and governments want and demand solutions executable “right here and now” at a known cost. Outsourcing service providers and the run of the mill advisors are seldom agile enough to “spring” out of bed let alone organise a full rethink of the status quo via our own “Arab Spring”.

In conclusion – the relatively high inflation is a boost for managing government debt but it should be a ‘call to action’ for decision makers to get ready for even bumpier times ahead.

Posted in Outsourcing Comments: one


One Response to Thank god for inflation! And what has this to do with Outsourcing?

  1. c0TC2bYfQ says:

    This post has created within me belief. I will write something about this on my blog.

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