Inflation: coming soon to a PR budget near you?

Centrica announced its big 35% price hike yesterday ahead of underwhelming results today. As we get into energy and financial services half-year results season, expect more of the same.




All this surely points to inflation 'creeping' up. At the very least, we're like to see pressure on employers to increase salaries, but in order to do so they'll need to increase their fees. And all the normal laws of economics will come into play.



What does this mean for PR firms and PR budgets? For me, one big question - charges will have to go up, so who's going to be first to do it?



If the prices of basic essentials continue to escalate, a growing wage bill is inevitable. Putting prices up is always tricky for a PR agency, particularly when it doesn't come at a convenient point like year-end. Demand for digital PR services may help to soften the impact, but if we see prices going up all over the shop, PR has to follow.


For the small independent agencies, wage pressure will probably initially be soaked up by a big drop in profits rather than fee hikes, but that's not sustainable for too long as banks won't give the credit facilities many will rely on to manage their debtor books. They may look like they have cheap rates for a while. But hold fire for too long and, given they're likely to have relatively high overheads pro-rata, there's a danger they'll go under or struggle to handle larger clients.



For the mid-sized specialists and longer-in-the-tooth firms, there will probably be a need to make sensible increases to ensure charges are aligned with wage inflation. They have quite a comfortable position as they are big enough to be able to stomach a lower profit line.

The big boys, particularly those that are part of a publicly-listed company, will probably have a dilemma. Shareholders will want positive profit growth, albeit more restrained. Yet their cost bases will be higher and will doubtless shoot up fastest, meaning charges will have to increase. Their resource management is normally less effective, so wage bill increases will have less impact on productivity. That trump card of the big listed agency - acquiring in order to hit growth targets - looks hamstrung by a squeeze on profits and banks less willing to back them. It all points to a very tricky time ahead.

So can PRs look forward to pay rises to help them pay those increasing bills? It is looking that way, but agencies are going to need them to sweat harder to offset that. So jobs are likely to be harder to come by over the coming year, recruitment will be muddled and productivity will be a huge asset. We've already seen two agencies make redundancies in the tech sector recently, and firms everywhere will be looking to trim their fat.

The good news is that many specialist markets, particularly technology, still seem fairly resilient.

Agencies that can show their clients they are taking a responsible, sustainable and unselfish approach to these enforced pricing conditions are the ones most likely to come out smiling.