What is a likely effect of increased business costs due to inflation?

Increased business costs due to inflation can lead to less competitive exports primarily because as the costs of production rise, companies may have to raise their prices to maintain profit margins. This can make their goods more expensive compared to similar products from countries with lower production costs or less inflation. When exports become more expensive, international buyers may turn to alternatives, which can significantly diminish the global competitiveness of those exported products.

The inflationary environment can impact various aspects of business, including pricing strategies, wage demands, and operational costs. As domestic costs climb, companies might struggle to maintain their market share abroad, particularly in price-sensitive markets where consumers compare products based on cost. Therefore, the elevated expense structure driven by inflation can hinder a country’s ability to compete effectively in the international market, leading to a decline in export volumes.