
If your production costs go up 10% from $100 to $110 you might think you can just keep your 10% profit margin and it will all be fine because it is on the increased cost of production. As in, you take home $11 dollars instead of the usual $10 but that is only true if the profit is immediately invested gainfully, if not and it sits in the bank as liquidity, then inflation immediately begins to nibble at the value. Also, if the wages you pay yourself and your workforce do not keep up with inflation then your take home pay is actually less each year and it will be more difficult to keep up with the cost of living. For instance, if the actual cost of living is going up 9 percent each year then you should be getting a 9 percent raise each year! Now, there are not too many businesses giving 9 percent raises or raising the price of their products 9 percent each year. So, the bottom line is that when you are seeking to measure the value you are producing you need to at least be capable of adding the actual cost of living increases to your labor rates and still be profitable or you are actually in a declining market. Eventually you will have big labor and production issues to deal with when people really wake up to inflation!