Corporate leaders discussed the impact of inflation during their quarterly earnings calls last week, according to The Wall Street Journal (subscription).
Supply chain costs: CEOs pointed to increased supply chain costs as the greatest current inflation-related stressor for their businesses. Material and transportation costs have increased substantially as shipping ports remain congested and backlogs delay the delivery of certain products.
Little change in consumer behavior: Several CEOs noted that inflation has not drastically changed consumer behavior so far. Though a significant majority of global consumers report concerns about rising inflation, demand for most products remains high. “I’m not pessimistic about inflation killing demand,” said Dow Inc. Chairman and CEO Jim Fitterling. “Honestly, inflation has always been a positive for our business. And over the last 30 years, when the Fed raises interest rates, that typically tends to drive outperformance in our sector versus the other sectors.”
Looking ahead: CEOs predicted the pressures of inflation will be felt most in the first half of this year, as corporations continue to navigate the increases in supply chain costs experienced during the latter months of 2021. CEOs largely agreed that inflation will continue over the next few years, but with more modest and typical increases than in 2021. “We think we’re kind of heading into a new normal,” said Oshkosh Corporation President and CEO John Pfeifer.
What we’re saying: “Core inflation is likely to remain elevated, even if the first half of 2022 brings some stabilization,” said NAM Chief Economist Chad Moutray. “The current forecast is for the core PCE deflator to be roughly 2.8% year-over-year by the end of 2022. That remains above the Federal Open Market Committee’s stated goal of 2% core inflation over the long term.”
- “We know that the Federal Reserve will wind down its asset purchases, with quantitative easing ending in early March. The FOMC is also likely to increase short-term interest rates as soon as the March 15–16 meeting, with three or four rate hikes expected this year.”