Unless you have been living under a rock for the last year, you would have been hard pressed to have avoided the constant flow of news about rising levels of inflation.

Although the effects of this have been quite varied around the world, with some economies managing to grow despite increased inflationary pressures, such as Ireland, for many of us around the world, rising living costs and stagnating wages have been all but impossible to escape over the last year.

While the effects of inflation have been felt acutely by billions of ordinary working people around the world over the last year, the effects of increased inflation have not necessarily been quite as dire for the industrial sector. While some industries have really struggled in this inflationary environment, others have managed to thrive despite the difficult economic conditions.

This raises an interesting point about rising inflation that is often missed out in reporting on the trend: that its effects tend to be felt unevenly across the economy.

With this in mind, let’s take a look at some of the industries and sectors that have been the hardest hit by rising inflation this year.

What is inflation?

Before we look at some of the different industries that have been hit by inflationary pressures this year, we should first be clear about what inflation actually is and what causes inflation. This will give us a better understanding as we unpack this trend.

Taken at its most basic, inflation is an increase in the prices of goods and services which results in a decline of purchasing power over time. This is typically calculated by looking at the change in price of a basket of goods and services over a defined period of time, which gets calculated as a percentage.

The causes of inflation are complex and multi-faceted; however, they are usually either demand-pull inflation, cost-push inflation or built-in inflation. In reality, it is often a combination of these factors.

The effects of inflation do not tend to be felt evenly across all sectors of the economy and individuals on low to medium incomes will usually be the hardest hit. Inflation also tends to hit basic necessities the hardest, such as everyday foods and energy prices. Housing prices also tend to rise in an inflationary environment, as central banks will typically increase interest rates to slow down the rate of inflation.

What industries are hit hardest?

One of the most immediate consequences of rising inflation, is that it inevitably has an impact on consumer spending habits. This is because as inflationary pressures force the cost of living upwards, average wages generally don’t increase in parallel. As a result, households have less money to spend on discretionary spending and will also tend to cut back on essentials.

This inevitably has an impact on the industries that these individuals would otherwise be spending their money on. Also contributing to the pressure on businesses is a corresponding increase to the cost of doing business which that inflation also causes. There is also increased pressure on supply chains, which presents an even more challenging commercial environment.

So, what are some examples of industries that have been hit hard by inflation over the last year?

  • Tech companies: If any industry has had a rollercoaster ride over the last year, it is the tech sector. The tech sector has come under significant pressure in the last year, with the likes of Apple, Amazon and Meta all experiencing plunging stock prices. One reason for this is because rising inflation has pushed both advertising spending and consumer spending down. As a result of this, many tech companies have started trimming down their staff rosters and have announced additional cost-saving measures.
  • Consumer discretionary: Another sector hard hit by inflation has been companies in the consumer discretionary industries. This means companies such as Volkswagen, Tesla, General Motors and Toyota have all been hit with plunging stock prices and lower revenues in the last year. Issues with supply chains have compounded this, which has also hit the likes of Nike, Starbucks and Sony. Any company offering a non-essential good or service tends to get hit by inflation the hardest.

Are there any industries that benefit?

Despite inflation clearly hitting certain industries hard, other sectors of the economy actually tend to profit more during inflationary periods.

This has proved true of sectors such as the energy sector — who have reported record profits this year — along with consumer staples. These businesses provide goods or services that are essential, so they do not experience a significant dip in demand when consumer purchasing power goes down.

This article was provided by David Harrison