Will Inflation Last Into 2023? Global CEOs Say Yes, While Key Price Indicator Hits Record Level

Inflation is worrying chief executives globally, according to a survey released Thursday by the Conference Board, a business research group, and data shared by the U.S. Bureau of Labor Statistics on Thursday backs their concerns.

Key Facts

Some 55% of CEOs expect higher prices to last until mid-2023 or beyond next year, according to the survey.

Rising inflation is the second-most common external business worry for CEOs, trailing only disruptions caused by Covid-19, after being just the 22nd most cited concern in Conference Board’s 2021 poll.

Supply chain bottlenecks were the most common explanation for the rising prices among CEOs, and 82% of respondents said their businesses were impacted by rising input costs, such as raw materials or wages.

The poll was conducted between October and November of last year among 917 CEOs in the U.S., Asia, Europe and South America.

Big Number9.7%. That’s how much the Producer Price Index, a measure tracking the prices manufacturers pay for goods, rose in 2021, the highest year-over-year increase since the Bureau of Labor Statistics began calculating the statistic in 2010. The PPI is considered a forward-looking indicator for consumer prices, meaning that the highest inflation U.S. consumers have faced in four decades could climb even further.

Tangent

The Conference Board survey found that the U.S. has faced unique labor issues during the pandemic. Labor shortages were considered the top external threat to business by U.S. respondents as a record number of Americans quit their jobs, but were not higher than third on the list of CEOs from other countries.

A primarily remote workforce is also a mostly American phenomenon: More than half of American CEOs said that they expect 40% or more of their workforce to work remotely after the pandemic, compared with just 31% of CEOs from Europe and 17% of CEOs from Japan.

Further Reading

Inflation Surge Is on Many Executives’ List of 2022 Worries (Wall Street Journal)

Inflation Spiked Another 7% In December—Hitting New 39-Year High As Fed’s Price Concerns Rattle Markets (Forbes)

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I’m a New Jersey-based news desk reporter covering sports, business and more. I graduated this spring from Duke University, where I majored in Economics and served as sports editor for The Chronicle, Duke’s student newspaper.

Source: Will Inflation Last Into 2023? Global CEOs Say Yes, While Key Price Indicator Hits Record Level

The Critics:

The 48 professional forecasters surveyed by the National Association for Business Economics were asked when the so-called core inflation rate (which leaves out food and energy prices) might return to the 2% range that the Federal Reserve targets (and that was commonplace before the pandemic).1 Right now the rate—as measured by the year-over-year change in the Bureau of Labor Statistics’ Personal Consumption Expenditures price index—is 4.1%, the highest since 1991.23

Most respondents said it would take at least until the second half of 2023, including more than a third who forecast 2024 or later. Since the survey was conducted in mid-November—before the omicron variant of COVID-19 was identified—it doesn’t account for how that news might impact their outlook.

The Federal Reserve has determined that roughly 2% is a healthy middle ground for inflation, one that enables a strong economy without hurting people’s buying power too much. The longer inflation stays hotter than that, the more likely the Fed is to do things to put a lid on it,4 like raise the benchmark federal funds rate. That rate influences all kinds of other interest rates, impacting the cost of borrowing on credit cards, mortgages, and other loans.5

Inflation has been double that 2% sweet spot because of the pandemic’s disruptions to supplies and the labor market. It’s hard for businesses to manufacture and transport enough goods to satisfy consumers’ unusually voracious demand for stuff.

Personal income grew 0.5% in October compared with the month before, as wage increases more than made up for declines in unemployment benefits from the government following the expiration of pandemic-era relief programs, the Bureau of Economic Analysis said Wednesday in its monthly report on income and spending.1

People were inclined to spend the extra pocket money, as inflation-adjusted spending accelerated for a third month, rising 0.7%. They also saved less of their disposable income—7.3%, compared with 8.2% in September—staying within pre-pandemic norms and a far cry from April 2020, when the saving rate hit 33.8%.23

All that extra money didn’t go as far as it might have, though. The report also showed core inflation (not including food and energy) rising to 4.1% from a year ago, compared with 3.7% in September, hitting its highest level since 1991. That was in line with what forecasters at Moody’s Analytics had expected, possibly signaling that elevated inflation isn’t going away anytime soon.

“Inflation is no doubt a headwind, but in October at least, it was not enough to stop consumers from spending,” economists at Wells Fargo Securities said in a commentary.

Inflation Hits 15%, Fossil Fuels Boom,Here Are The Predictions For 2022

1For the first time since the second world war, U.S. inflation could hit 15% in 2022, as a perfect storm of events creates massive price increases. So says Saxo Bank, in its “outrageous” predictions for the year ahead. But the logic it sets out in its latest report does not seem so far fetched.

Federal Reserve chair Jerome Powell believes millions of Americans will return to work and fill some of the 10.4 million open job positions as Covid-19 fades. “But this is plain wrong,” says Christopher Demik, head of macro analysis at the Denmark-headquartered Saxo Bank.

Early retirement has meant the U.S. workforce is much smaller after Covid. Other workers have realized they no longer want to work grueling hours for low pay. They are demanding a better experience: better job conditions, higher wages, more flexibility, and a sense of purpose from work. “The pandemic has created an awakening of workers,” says Demik.

Employers will therefore have to increase wages for less desirable jobs. These increases could hit the “unprecedented” double-digit mark. Combine that with all the other inflationary pressures, an energy crisis, and supply chain disruption, and suddenly things spin out of control.

In such a scenario, the Federal Reserve will try to react, says Demik. “But this is already too late. It has lost credibility.” Saxo Bank says U.S. inflation could go above 15% before 2023. The result will be extreme volatility in U.S. equity and credit markets as the Federal Reserve tries to regain credibility and shove inflation back into the single digits.

“We should not discount the fact that the severe mismatch between labor supply and labor demand has led to a rapid increase and broadening in wage growth,” says Oxford Economics in its latest U.S. research briefing, published last week.

However, the data analytics firm says that, in spite of these headwinds, PCE inflation will peak later this year, remain above 4% in the first quarter of 2022, and fall rapidly thereafter. Wage growth will peak at 6% in early 2022 before falling, which is far cry from the double figures predicted by Saxo Bank.Fossil Fuel Investments Soar As Cop26 Targets Are Ignored

With inflation persisting into 2022, policymakers are likely to “kick climate targets down the road,” says Saxo Bank. Again, this prediction is grounded in today’s realities. The energy crisis is already having a very direct impact on inflation. And this is not just about heating fuel, which the Northern Hemisphere needs more of at this time of year, but nearly all goods and services.

The availability and price of many oil-based fertilizers will push up the cost of agricultural produce in 2022, for example. The same goes for building materials, such as cement, which use fossil fuels in their manufacturing.

This is not helped by green taxes and environmental policy which make it both more expensive and harder to sell oil-based products. “The problem with this,” says Ole Hansen, head of commodity strategy at Saxo Bank, “is the fact that we need energy and we need metals in order to ensure that green transformation.”

Governments could intervene by “scrapping some of the restrictions on investments into these sectors,” he says. For example, red tape around oil production could be suspended for five years, and natural gas production for ten years, in order to both dampen inflation and allow the green transition to progress.

“Investors should maintain a pragmatic approach given the serious gaps between net-zero ambitions and potential outcomes,” says Frédérique Carrier, head of investment strategy at RBC Wealth Management. The Canadian bank warns there are massive challenges to the net zero ambitions pledged at COP26, not least funding.

William Nordhaus, a Yale professor and recipient of the 2018 Nobel Prize in Economics, estimates it would take between $100 trillion and $300 trillion in new capital on a global basis to reach net-zero emissions by 2050. Inflation could increase this estimate dramatically, forcing governments to delay, completely abandon all the climate pledges they made in 2021.

A Hypersonic Cold War Begins

In October, the Financial Times broke a ground shaking story: China tests new space capability with hypersonic missile. The test, which took place secretly in August, stunned U.S. intelligence. The Chinese rocket circled the globe before narrowly missing its target, flying under the radar in both metaphorical and literal terms.

This sets the scene for Saxo Bank’s next outrageous prediction: A hypersonic arms race. Already, the U.S. is scrambling to rework its hypersonic missile program, which is far behind China’s. Saxo Bank predicts India, Israel, and the E.U. will join the U.S., China, and Russia in developing hypersonic missile programs.

This would bring about a new cold war that is “not just between the U.S. and China, but with other players globally as well,” says John Hardy, head of FX strategy at Saxo Bank.

As more and more countries develop hypersonic missiles the ‘mutually assured destruction’ theory, whereby countries would not launch a nuclear attack for fear of immediate retaliation, becomes obsolete.

Until all of the world’s major powers acquire hypersonic missiles, an arms race will take place. There will be “massive insecurities about legacy, conventional and nuclear capabilities,” says Hardy. But there will also be a huge increase in defense spending similar to the last cold war. “We see in the financial markets space a scrambling for funding for companies that are involved in the hypersonic space.”

Unlike the last cold war, however, there is unlikely to be a battle for territory. Hypersonic missiles can circuit the globe, and therefore do not require a launch base in another country, like Cuba. Saxo Bank is keen to point out that these are not its official market forecasts for 2022. But investors might consider just a “one percent chance of these events materializing.”genesis2

Some investors are already ahead of them. Oil exchange traded funds (ETFs) which track oil producers and service companies have rallied in the last month, for example. And there are few with wealth who have not yet prepared for further inflation.

On the other hand, shares in defense companies, such Raytheon, Lockheed Martin LMT +1%, and BAE systems have all fallen since news broke of China’s hypersonic missile test in October.

Predictions, even outrageous ones, are fickle. Saxo Bank does not have a great track record in seeing its predictions come true. Two years ago nobody was talking about a global pandemic sweeping the world, forcing people to stay at home, and casting economies into recession. That would just be too outrageous.

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I am a freelance journalist with a decade’s experience covering business stories from around the world. When not reporting, I advise governments, businesses and billionaires about

Reopening Stocks Lead The Market Higher After Strong Jobs Report, Pfizer Announcement

The stock market rallied to record levels yet again on Friday after a better than expected October jobs report, a big announcement from Pfizer and a slew of strong corporate earnings results all helped boost investor optimism about America’s economic recovery.

Key Facts

All three major averages touched new highs: The Dow Jones Industrial Average rose 0.6%, over 200 points, while the S&P 500 gained 0.4% and the tech heavy Nasdaq Composite increased 0.2%.

The United States added back 531,000 jobs in October—better than the 450,000 expected by economists, according to data released by the Labor Department on Friday.

The long-struggling labor market is showing signs of improvement, notching its best monthly showing since July, while the unemployment rate ticked down to 4.6%—its lowest level in more than a year.

A major announcement on Friday from vaccine maker Pfizer also helped boost stocks tied to the reopening of the economy: The company said it will seek FDA approval for its antiviral pill, which reduces the risk of hospitalization and death from Covid-19 by 89%.

Although the Pfizer announcement caused shares of other vaccine makers such as Moderna, BioNTech and Merck to plunge, travel and leisure stocks widely rallied on the news and led the market’s gains on Friday.

Solid earnings also helped drive optimism, including from the likes of Uber, which reported its first-ever adjusted quarterly profit as demand for ride-sharing recovered, and Airbnb, which had its “strongest quarter ever” as travel continued to rebound.

What To Watch For:

While reopening stocks have performed well recently, several pandemic favorites have struggled. Shares of at-home fitness equipment maker Peloton plunged over 30% on Friday after reporting dismal quarterly earnings—making CEO John Foley no longer a billionaire. Other companies have also seen their businesses take a hit from the reopening of the economy: Smart TV company Roku and online education company Chegg both reported lackluster earnings this week.

Tangent:

The Federal Reserve said on Wednesday that despite labor shortages, supply chain constraints and inflation fears, the U.S. economy was recovering well. The central bank announced that it would begin reducing the historic level of stimulus it has been providing markets since the Covid-19 pandemic began. Fed chairman Jerome Powell also clarified his stance on high inflation, saying it was “expected to be transitory.” Markets have since rallied on the news.

Key Background:

The stock market has continued to hit fresh highs in recent weeks: The S&P 500 rose over 5% in October for its best month so far in 2021 and is up nearly 2% so far in November. Optimism around the reopening of the U.S. economy has grown, in large part thanks to third-quarter corporate earnings that have proved resilient despite higher costs and inflation fears. Of the 445 companies in the S&P 500 that have reported results so far, nearly 81% have beaten expectations, according to Refinitiv.

Further Reading:

Peloton Shares Plunge Over 30%—And CEO John Foley Is No Longer A Billionaire (Forbes)

Stocks Hit Fresh Records After Fed Says It Will Taper Pandemic Stimulus (Forbes)

U.S. Economy Added 531,000 Jobs Last Month—But 7.4 Million Americans Are Still Unemployed (Forbes)

Billions Wiped From Covid Pharma Heavyweights—Including Moderna, Regeneron, Merck—As Pfizer’s Antiviral Pill Triggers Selloff (Forbes)

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Source: Reopening Stocks Lead The Market Higher After Strong Jobs Report, Pfizer Announcement

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The Market Is Right To Be Spooked By Rising Bond Yields

Nobody likes dropping cash, however Tuesday’s stock-price fall worries me greater than the headline of a 2% fall within the S&P 500 ought to. In itself, 2% is not any biggie: three days this yr had larger falls, and on common we now have had seven worse days a yr since 1964.

What bothers me is that the rise in bond yields that triggered the autumn was actually fairly small, and there may simply be much more to return. The ten-year Treasury yield rose solely 0.05 share level, taking it above 1.5%, and the 30-year rose barely extra to only above 2%. If that is the type of response we should always anticipate, then get out your tin hat. Yields must rise 4 occasions as a lot simply to get again to the place they had been in March.

Why, you would possibly fairly ask, are shares abruptly spooked by bond yields? Within the increase as much as March, shares and yields marched increased collectively, and for the previous 20 years increased yields have typically been higher for shares. The distinction is that investors see the central banks turning hawkish, whilst financial development slows, as a result of they will’t ignore excessive inflation.

As  Pascal Blanqué,chief funding officer at French fund supervisor Amundi, places it, the worry is of an increase in charges pushed by inflation alone pushing central banks to behave, somewhat than an increase in charges pushed by financial development pushing central banks round. That is the mind-set that dominated funding till the late Nineteen Nineties. If it sticks, it marks a profound change.

In the long term, it could imply bonds would not present a cushion when inventory costs drop, making portfolios extra unstable. Within the quick time period, if the sharp rise in yields since the Federal Reserve meeting last week is the beginning of a development, then shares are in bother. On the flip aspect, if yields come again down, it is perhaps good for shares—because it was on Friday—somewhat than unhealthy, as has often been the case for a few many years.

To see the risk, suppose again to the spring, when yields had been marching increased. The outlook for inflation is about the identical (buyers are pricing it as excessive however short-term). The outlook for financial development is worse, which gives much less help for shares typically. However central banks have shifted stance from super-easy for just about perpetually to start out speaking about tightening.

That is the improper type of rise in bond yields. When yields had been rising as much as their March excessive of 1.75% for the 10-year Treasury, shares had been on a tear as a result of yields had been being pushed up by the prospect of upper financial development, and so stronger income. Overwhelmed-up worth shares and economically-sensitive sectors soared, whereas Huge Tech and different development shares, plus the dependable earners generally known as high quality shares, went sideways. After March, falling yields boosted development and high quality shares once more, whereas worth and cyclical went sideways.

This time, shares are reacting as they do when yields rise as a consequence of a central financial institution hawkish shift. Huge Tech, other growth stocks and quality suffered the most, as their excessive valuations make them reliant on projected earnings far sooner or later; increased yields make these future earnings much less enticing in contrast with proudly owning tremendous secure bonds. However with out the prospect of upper financial development to spice up earnings, low cost worth and cyclical shares additionally fell when yields rose, albeit by lower than development and high quality.

There’s enormous uncertainty in regards to the potential financial outcomes, so we shouldn’t simply assume that this week’s buying and selling sample will proceed. On the plus aspect, increased capital spending and the pandemic-driven adoption of know-how would possibly enhance productiveness greater than employee shortages push up labor prices. This could damp inflation and speed up development.

A retreat of Covid-19 might ease pressure on manufacturing and change spending again to companies. On the down aspect, hovering power prices and better costs from widespread provide bottlenecks would possibly hit households and weaken the financial system additional, whilst inflation stays excessive—the dreaded stagflation state of affairs.

We ought to be even much less assured about how central banks will react. I see twin triggers for the market’s reassessment. First, Fed coverage makers upped their “dot plot” predictions for rates of interest subsequent yr and the yr after, together with inflation. Second, the Financial institution of England, faced with an energy price crunch and higher-than-forecast inflation, warned of a potential price rise earlier than the tip of this yr. A slew of emerging-market central banks additionally raised charges, as did oil-producer Norway.

If the financial system reacts badly to increased yields, although, the Fed and Financial institution of England would possibly properly shift again to uber-dovishness. The withdrawal of emergency authorities spending measures in a lot of the world may also give the doves a brand new cause to maintain charges low.

Lastly, there’s uncertainty in regards to the market response itself. Possibly Tuesday’s bond strikes had been exacerbated by a mixture of momentum promoting and yields (which transfer in the other way to costs) rising above the brink of 1.5% on the 10-year and a pair of% on the 30-year. It may not be a coincidence that shares did properly on Friday as soon as the 10-year dropped again under 1.5%.

SHARE YOUR THOUGHTS

How involved are you in regards to the late September stock-price fall? Weigh in under. Spherical numbers shouldn’t matter, however typically do, whereas momentum is short-term. Tuesday’s transfer wasn’t pushed by an occasion on the day, so maybe the brand new narrative of hawkishness received stick. In spite of everything, it shouldn’t be that massive a deal to withdraw some financial help when inflation is greater than double the goal and coverage has by no means been simpler.

Given Huge Tech’s outsize share of the general market, buyers within the S&P 500 should be satisfied that if bond yields are going to maintain rising, it is going to be for the great cause of an accelerating financial system, not the unhealthy cause of sticky inflation pushing central banks to behave.

By: james.mackintosh@wsj.com

Source: The Market Is Right to Be Spooked by Rising Bond Yields – WSJ

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Delta Variant Has ‘Dented’ Job Market: Private Sector Added Disappointingly Low 374,000 Jobs In August

According to ADP’s monthly employment report, August employment data highlights a “downshift” in the labor market recovery marked by a decline in new hires following significant job growth from the first half of the year.

Despite the slowdown, ADP chief economist Nela Richardson says job gains are approaching 4 million this year but are still 7 million jobs lower than employment before the pandemic.

Service jobs continued to head up growth, with the leisure and hospitality sector adding 201,000 jobs, followed by the healthcare industry’s job gains of 39,000.

August job additions were in line with July gains of 326,000, but trail behind additions of more than 600,000 each month since April.

Key Background

With the unemployment rate of 5.4% still stubbornly above pre-pandemic levels below 4%, experts have cautioned that the post-Covid labor market recovery could drag on for years. Despite strong gains in past months, the Federal Reserve last week said its performance was still too “turbulent” to warrant a change in pandemic-era monetary policy, and Wednesday’s disappointing report should only bolster that argument.

Crucial Quote

“The delta variant of Covid-19 appears to have dented the job market recovery,” Mark Zandi, the chief economist of Moody’s Analytics, said in a statement alongside the report, adding that the labor market remains strong, but well off its performance in recent months. “Job growth remains inextricably tied to the path of the pandemic.”

The August jobs report, set to be released Friday, will give policymakers some insight into how the economy has responded to the delta surge. The U.S. added 943,000 jobs last month, according to the most recent report, but that data was compiled before the Centers for Disease and Control and Prevention first raised alarms about the transmissibility of the delta variant.

Though it may still take several months to assess the total impact of the delta variant, economists expect that women and Black and Hispanic workers, who were more likely to lose their jobs amid the onset of the pandemic, will continue bearing disproportionate burdens.

What To Watch For

The onset of the pandemic wiped out roughly 8.8 percent of jobs in public education as schools were forced to shutter, but Pollak said the delta surge is unlikely to trigger deeper layoffs. Instead, she expects delays to office reopenings driven by school closures to limit the recovery of other jobs reliant on work travel and office presence.

The Bureau of Labor Statistics will release its August jobs report on Friday. Economists expect the economy to have added 720,000 jobs last month, compared to 943,000 in July.

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I’m a reporter at Forbes focusing on markets and finance. I graduated from the University of North Carolina at Chapel Hill, where I double-majored in business journalism and economics while working for UNC’s Kenan-Flagler Business School as a marketing and communications assistant. Before Forbes, I spent a summer reporting on the L.A. private sector for Los Angeles Business Journal and wrote about publicly traded North Carolina companies for NC Business News Wire. Reach out at jponciano@forbes.com. And follow me on Twitter @Jon_Ponciano

Source: Delta Variant Has ‘Dented’ Job Market: Private Sector Added Disappointingly Low 374,000 Jobs In August

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