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Which business expenses will rise 2022?

Posted by Kanika Sinha

October 29, 2021    |     5-minute read (983 words)

U.S. businesses should expect costs such as insurance, shipping, health care and energy to increase in 2022, according to an Oct. 12 Kiplinger report. Key interest rates including the 10-year Treasury note will also edge up amid growth in the GDP, consumer spending and wages, per Kiplinger.

Here’s a comprehensive look at Kiplinger’s business cost forecasts for next year.

Strong economy 

The report predicts GDP growth of 5.5% in 2022, with consumer spending increasing 4.7% due to fewer coronavirus infections coupled with big federal government spending. Kiplinger also forecasts a 13% jump in corporate earnings. 

Below are Kiplinger’s macroeconomic trend predictions for:

Inflation – After a 5.3% rise expected in 2021, inflation will still run hot at around 3% at the end of 2022. Pent-up consumer demand and government spending will continue to pressure prices. 

Cost to borrow – The cost of borrowing is expected to edge up, with the 10-year Treasury note rate set to rise to 2.3% by 2022’s end. The 30-year fixed mortgage rate will climb to 3.8% next year, but the prime rate is likely to stay unchanged at 3.25%. 

Unemployment – The unemployment rate will fall below 4% before the end of 2022. 

Labor – A tight labor market will push average pay hikes to 3.5% after 2021’s 4% spike. 

Wages –Strong wage gains will continue for production jobs in sectors such as construction, manufacturing, retail, food service and travel. But this will only be the case until the high job opening rate declines. Demand for these workers will grow higher in the first half of 2022 as the number of coronavirus infections tapers and the service sector opens more fully.

Health costs up

  • With insurers covering costs from Delta variant infections, health costs will rise,
  • Prices for employer-sponsored plans are predicted to jump 7%. To retain and attract employees, most firms will absorb the higher costs rather than pass them on to staff. But that will change as the U.S. labor supply improves. 
  • Prescription drug prices will increase by 7%, and dental insurance will climb 3% to 4%.
Shipping costs to be a mixed bag

  • As pandemic conditions normalize, shipping costs may dip by 5%. But contracts are apt to renew at higher rates in early 2022 as contract rates catch up with spot rates. 
  • Rates for flatbed trucks may ease more than those for dry vans or refrigerated trucks,
  • Ocean freight rates are expected to ease mid-2022 as trade normalizes after container rates doubled to reach historic highs in 2021. But refrigerated rates for U.S.-South America trade will continue to climb.
  • Rail container rates will improve marginally as backlogs ease. Other rail rates will jump at least 2% owing to increased auto and coal production costs.
  • The loss of global passenger capacity in 2020 and 2021 sharply increased air freight rates. The trend is likely to persist in 2022 if disruptions to passenger air travel continue. But if the pandemic recedes enough to return international travel to normal, freight rates are expected to pull back in 2022.
Rents may edge up

  • Office rents are likely to increase slightly in 2022. 
  • Retail rents will remain unchanged with construction at a multiyear low. Well- located, newer malls with modern anchor tenants may see hikes. 
  • Demand for warehouses will continue, and rents will increase about 2.5%. 
Energy costs to climb

  • Electricity rates will continue their steady climb as demand recovers.
  • Gasoline and diesel prices will average 5% to 10% higher than t2021 levels.
  • Natural gas prices will see a modest increase, but weather patterns will play a role. A cold winter could cause prices to spike; unusually mild temperatures could bring a major price drop. Overall, the report suggests gas prices will nudge higher, meaning mid to high single-digit gains, based on supply-and-demand trends.
D&O coverage cost hikes

  • Commercial property insurance rates will increase 5% to 10% for properties not exposed to natural calamities. For those with exposure, rates will go up 15%.
  • Rates for directors & officers insurance will increase 50% for public companies and 60% for private firms and nonprofits, due to a steady increase in litigation. 
  • Casualty insurance rates will climb 5% to10%. Companies renewing cyber insurance policies will see hikes up to 5%. Those with recent claims will see hikes of 7% to 10%. 
  • Retailers with point-of-sale systems should expect a price hike of 10% to 15%. Those with improved security may be offered a rate cut.
  • Legal costs for businesses will jump about 4%. Accounting costs may jump 10% for a typical company.
Pension charges to remain static or up slightly

  • With the 2022 wage base cap to go up – meaning the maximum amount of earned income that employees must pay Social Security taxes on -- payroll taxes will rise
  • For firms paying premiums to the Pension Benefit Guaranty Corp, rates are likely to be unchanged except for inflation-related indexing. 
  • Flat-rate premiums for single-employer pension plans are likely to hover around $89 per participant in 2022. Variable-rate premiums for underfunded plans are expected to be approximately $47 per $1,000 of unfunded vested benefits (subject to a per-participant ceiling of $600 or so).
Travel costs to soar

  • Domestic airfares will rise another 20% when travelers feel safe again. 
  • Hotel rates will continue to edge up as the industry recovers. 
  • Car rental rates will soar higher due to strong demand and vehicle shortages.
Tech costs to see small hikes

  • PC prices will be a bit higher, especially laptops. Delivery delays and shortages are likely.
  • Small hikes are forecasted for printers, both personal and commercial. 
  • Home internet services will see small price hikes in 2022 and fewer deals on bundles. Business internet services will continue to see competitive pricing and deals.
  • 5G phones are expected to become cheaper, despite cellular service data costs that continue to fall. Fewer deals are likely.

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