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.
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.
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.
Inflation Surge Is on Many Executives’ List of 2022 Worries (Wall Street Journal)
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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.
- What Is Inflation?, Cleveland Federal Reserve, October 21, 2014
- Overview of BLS Statistics on Inflation and Prices : U.S. Bureau of Labor Statistics”. Bureau of Labor Statistics. June 5, 2019.
- Nasiha Salwati; David Wessel (June 28, 2021).
- “How does the government measure inflation?”. Brookings Institution.
- “The Fed – What is inflation and how does the Federal Reserve evaluate changes in the rate of inflation?”. Board of Governors of the Federal Reserve System. September 9, 2016.
- Why price stability? Archived Outside the Mainstream: an Interview with Axel Leijonhufvud (2002)
- “Escaping from a Liquidity Trap and Deflation: The Foolproof Way and Others” Lars E.O. Svensson, Journal of Economic Perspectives, Volume 17, Issue 4 Fall 2003, pp. 145–166
- On the Origin and Evolution of the Word Inflation”, Federal Reserve Bank of Cleveland, Economic Commentary, 15 October 1997.
- UK House Price Index.
- Ieva Rubene and Gerrit Koester, “Recent dynamics in energy inflation: the role of base effects and taxes” (2021).
- On the Origin and Evolution of the Word “Inflation““. Economic Commentary. Federal Reserve Bank of Cleveland, Economic Commentary (October 15, 1997).