Inflation can lead to which of the following outcomes for organizations?

Inflation can significantly affect the operating environment for organizations, primarily through the impact on costs and customer behavior. When inflation increases, the cost of goods and services typically rises. Organizations may face higher expenses, including labor costs, raw materials, and operational expenditures. As these costs climb, businesses might pass some of these expenses onto consumers in the form of higher prices.

This increase in prices can lead to decreased customer retention. Customers may feel the impact of inflation in their own budgets and may seek alternatives or switch to competitors who offer more favorable pricing or perceived value. As a result, organizations may struggle to maintain their existing customer base while managing rising costs, leading to lower customer satisfaction and retention rates.

In contrast, the other options do not align with the typical effects of inflation. Increased customer satisfaction would be unlikely under inflationary pressures, as customers generally become more price-sensitive. Lower interest rates are not a direct outcome of inflation; in many cases, central banks might raise interest rates to counter inflation. Lastly, inflation usually does not result in reduced employee demand; rather, workers may demand higher wages to keep pace with rising living costs, which further drives expenses for organizations. Therefore, the outcome of higher costs and decreased customer retention due to inflation is a fitting