It’s Getting Pricey Out There: Why INFLATION matters to your nonprofit

INTEGRALTrends is a series that looks at the trends and dynamics that impact how we plan, lead, and operate our nonprofits and charities.?As the environment that nonprofits work within continues to shift, leaders need to keep a finger on the pulse of external trends – what’s happening in politics, economics, funding, and the nonprofit sector as a whole – to understand how to best prepare and adapt.

It doesn’t take much more than a trip to the gas station or supermarket to really be struck by how much prices have increased in the past few months. A trend that is certainly headline news these days and impacts almost every aspect of nonprofit operation, is one that we rarely talk about in nonprofit circles. Last week the latest Inflation numbers were released with the news that inflation has hit a 30-year high in Canada and in Alberta, with a 4.8% year over year (ATB, 2022). Note: March 16, 2022: Latest figures show Alberta's inflation rate in February was 5.5%, just shy of the national rate of 5.7% (ATB, 2022.)

Very simply, inflation is an increase in the price of goods and services that generally means that the value of the money we have decreases. For years, inflation has been held relatively low, and while impactful over time, has been relegated to background noise while other more pressing dynamics were front and center. Today that is no longer true, and inflation has become a major issue for nonprofits and charities.

Inflation: An erosion over time

Inflation is a trend that affects nonprofits deeply, but it is a challenging to get a handle on. For most of us, if we were to receive news of a funding cut of 5%, we would know exactly how much money that is and would fairly easily be able to identify the impacts on our organization. That clarity allows us to know how to deal with the reduction and how to make plans about where we might make adjustments. Inflation on the other hand is a more subtle and subversive dynamic: it is an erosion that happens over time, chipping away at our capacity bit by bit. Like many slow changes, the impacts are hard to feel day-to-day, but do become significant as time goes by.

To be able to address the effects of inflation and to be able to plan for it, we need to understand how it impacts our organizations.

The cost of operating will increase

Most apparently, we see that the costs of operating are going up. The value of our money is going to be a less than it was last year and it is going to cost more to keep our nonprofits running. We are seeing increases in power bills, at the gas station, and at the grocery store. While not all costs will rise equally, price disruptions tend to work their way through, resulting in basic operating costs being more expensive for nonprofits.

Client, donors, and other stakeholders will be affected

Beyond the direct operating cost increases, inflation affects nonprofits indirectly as costs also increase for clients, donors, and other stakeholders.

As the cost of living climbs, more households will have difficulty meeting essential expenses, therefore increasing the demand for services for some nonprofits. Impacts of inflation will be felt across the nonprofit sector in discretionary expenditures. If households don't have enough money to pay for essentials, the extra or discretionary expenditures may have to be foregone. Experiences like taking in an arts performance, enrolling children in a recreational activity, or giving a charitable donation become more difficult choices when money gets tighter.

Employees are going to feel the pain

If costs are rising about 5% this year, and organizations are not able to offer a wage increase close to the inflation rate, nonprofits employees will be challenged in a few ways.

The past two years have been exceptionally difficult for nonprofit employees - staff wellbeing has emerged as significant concern. As we enter a period where, quite simply, the value of a paycheck will not go as far as it did last year, organizations may be challenged to attract and retain qualified staff in a sector that does not tend to pay as well as other industries.

On top of this, the nonprofit sector tends to lag the overall economy in terms of recovery and other industries may emerge from this downturn a little faster. As other industries ramp up and look to recruit staff, demand for labour will increase and the ability to offer competitive wages will once again be an issue for the sector.

There are some steps we can take to mitigate the impacts of inflation:

1.??????Review your budgets. If you set your 2022 budget last year, before inflation rates rose, you may need to review costs and expenditures and adjust.

2.??????Take a look at how the rising costs are impacting your clients, patrons, and stakeholders. Once things open up fully, will programs be full – or will there be increased barriers to participation? Can we expect donations to stay at their current levels?

3.??????Talk to your staff about how the increased costs of living are impacting them. As a nonprofit, you may not have the ability to offer a 5 or 6% increase. But keeping open communication with your staff ensures that the slow erosion effects of inflation do not grow to be a deal breaker. Consider other ways that staff can be rewarded, perhaps in time or flexibility.

View a video of Mike Grogan discussing this trend.

Mike Grogan is President and CEO of IntegralOrg, a capacity building nonprofit that provides governance and management support and resources for Alberta nonprofits and charities. IntegralOrg is grateful for the support of the Calgary Foundation to undertake this work.