Building Inflation-Resilient Business Strategies

Inflation represents a persistent economic challenge for New Zealand businesses influencing everything from consumer spending to supply chain costs.

For small and medium-sized enterprises (SMEs)—which make up over 97% of all businesses in New Zealand—this challenge is particularly acute. SMEs often operate with tighter margins, leaner teams, and less access to capital, making them more vulnerable to cost increases and market volatility. 

As of the March 2025 quarter, New Zealand’s annual inflation rate stands at 2.5%, according to the latest Consumer Price Index (CPI) data. While this marks a slight increase from 2.2% in December 2024, it remains significantly lower than the peak of 7.3% recorded in June 2022—a period marked by global supply chain disruptions, surging energy prices, and strong domestic demand.

 

 

 

This volatility highlights the dynamic nature of New Zealand's economic environment. When inflation becomes a structural element of the economic environment, SME business leaders must integrate inflation management into their broader strategy, not just as a short-term fix, but as a long-term approach to resilience and growth.

This article outlines how SMEs in New Zealand can proactively shape their business strategies to withstand the pressures of inflation and emerge more competitive and agile.

1. Embedding Pricing Agility

Inflation-driven cost increases affect every level of an SME's operation, from raw materials to logistics and staff wages. However, many SMEs are hesitant to pass these costs on to customers for fear of losing business. To navigate this, SMEs need to develop dynamic pricing strategies.

Rather than applying uniform price hikes, businesses can adopt segmented pricing, offering various product or service tiers to appeal to different customer groups. For example, a small food manufacturer might introduce a value line alongside its premium products, giving price-sensitive customers an option without undermining its margins. Using customer data and digital tools, such as CRM and inventory software, SMEs can also monitor demand elasticity and adjust pricing in real time.

Additionally, clear communication around price changes—emphasising quality, value, or supply chain realities—can help maintain customer trust.

2. Cost Efficiency and Operational Resilience

Cost control becomes essential when inflationary pressure threatens profitability. New Zealand SMEs can take advantage of digitisation and automation to streamline processes, reduce manual errors, and free up staff for higher-value tasks. For example, cloud-based accounting systems like Xero or ERP solutions can improve financial visibility and automate reporting. In service-based sectors, online booking systems and chatbots can reduce administrative overhead.

Collaborative procurement—where multiple SMEs collectively negotiate better supplier rates—or joining local business networks can also lead to significant savings. Additionally, reassessing overheads such as rent, utilities, insurance, professional services and transport offers opportunities to negotiate better terms or find more cost-effective alternatives.

3. Strengthening the Supply Chain

Global disruptions in 2022–2024 highlighted the fragility of international supply chains. For New Zealand SMEs, which often rely on imported goods and components, inflation further compounds these risks.

One way forward is diversification. Instead of depending on a single overseas supplier, SMEs should seek alternatives—particularly regional and local suppliers in Australia or within New Zealand. This reduces lead times and transport costs, while also providing more predictable pricing.

Inventory strategies also play a role. While just-in-time inventory may reduce holding costs, it leaves businesses exposed to sudden price surges. Holding critical stock or negotiating long-term fixed-price agreements with key suppliers can buffer against unexpected inflation spikes.

4. Financial Risk Management

Sound financial management is fundamental to surviving inflation. Many New Zealand SMEs operate with limited cash reserves, making them especially vulnerable when costs rise unexpectedly.

To mitigate this, businesses should implement robust cash flow forecasting and scenario modelling. Tools such as Modano, Spotlight Reporting, or budgeting features in cloud accounting software can help visualise various inflation scenarios and guide financial decisions.

Access to credit is another important consideration. In an inflationary environment the RBNZ is likely to keep interest rates elevated to combat inflation resulting in the cost of borrowing remaining higher for longer. SMEs should consider restructuring existing loans to more favourable terms and building strong relationships with their banks/funders to ensure they can access working capital when needed.

Hedging strategies such as locking in currency exchange rates for imports and exports can also reduce exposure to inflation-related currency volatility.

5. Talent and Compensation Planning

Labour shortages have become a persistent issue in New Zealand, particularly in sectors like engineering, education, healthcare, construction, and tech. As inflation drives up wage expectations, SMEs must rethink how they attract and retain talent without unsustainably increasing payroll expenses.

One approach is offering value beyond salary. Flexible working arrangements, professional development opportunities, and a positive workplace culture can be just as compelling as pay rises.

Performance-based incentives, profit sharing, or one-time cost-of-living bonuses can provide motivation while aligning employee outcomes with business goals. Training and upskilling existing staff also reduces the need for expensive new hires and increases overall productivity.

6. Scenario Planning and Strategic Forecasting

Inflation increases uncertainty in planning and budgeting. SMEs must move beyond static annual budgets and adopt rolling forecasts that incorporate multiple economic scenarios. This allows decision-makers to quickly adapt as market conditions evolve.

Scenario testing tools help SME owners visualise how different inflation levels might affect their revenue, costs, and cash reserves. For instance, what happens if wage inflation hits 8% while input costs rise by 10%? Having these scenarios mapped out in advance helps businesses act decisively rather than reactively.

Inflation is no longer a short-term phenomenon. For New Zealand SMEs, it presents both a threat and an opportunity. While rising costs, uncertain supply chains, and wage pressures may strain operations, businesses that embrace strategic foresight and adaptability can thrive.

Embedding pricing agility, operational efficiency, resilient supply chains, and smart financial practices into a company’s core strategy isn’t just a hedge against inflation—it’s a blueprint for sustainable growth. When SMEs build these capabilities, they are not only protecting their present—they are investing in a more resilient and competitive future.

If you would like to know how we can help you or your board develop your strategic planning capabilities, contact us today for a complimentary consultation.

Author - Nick Savill