Comment: Inflation is vital to help keep business in the black

‘Greed is good!’ Even those of you who have never seen the film Wall Street have probably heard of Gordon Gekko and his iconic speech.

It summarised for many the ghastly ethos of the financial world in the 1980s.

The speech works, in the film and as a summary of that era, partly because there is a grain of truth in what Gekko says.

Greed can be an effective motivator and many business empires have been built on it. The problem is often that it is uncontrolled and indiscriminate and of course it is an unattractive human trait for most of us.

In my own small Oliver Stone way, I want to speak up for another unfashionable idea.

‘Inflation is good!’

For decades we have had it drummed into us that inflation is evil, undermining economies, destroying savings and bringing untold hardship. And when it runs out of control, it is. But some level of inflation has been a fact of life for the past 40 years, and both businesses and consumers have become accustomed to its presence.

Retailers in particular have good reason to want at least some inflationary movement in the economy. For us, modest annual increases in prices are beneficial, oiling the wheels of our businesses and giving momentum to the sales line.

The food retailers have fared better on average than most sectors recently for the reason that there has been steady inflation in food prices.

Not being able to move selling prices upwards creates great strain on retail businesses, especially in recessionary times when volume growth is hard to achieve. We have had to absorb serious increases in energy costs, rent, rates and sometimes in purchase prices, but few of us have been able to pass much of it on.

Retailers are typically lean businesses anyway, so the challenge to maintain net margins is great.

Moreover, the same squeeze is affecting our customers. Most people I know have had little if any increase in income over the past three years, but they are affected by many of the same cost increases. Most consumer surveys show the result, that people feel poorer than they did three years ago, and are less likely to spend at the same level.

The only comfort I can offer is that it could be worse. In the depths of the Irish economic crisis, in the food business we had one year when there was 12% deflation. This meant that we had to do all the same work, at the same (or higher) cost, but got 12% less in the till. It was a terrible experience.

Stagnation in selling prices against a rising cost base is resulting in slow strangulation of retail businesses. It is rumoured that the new governor of the Bank of England favours relaxing the limits on inflation to assist recovery. Perhaps the retail lobby should give him every encouragement.

• Simon Burke is chairman of Hobbycraft