American financial executives do not trust the Federal Reserve to manage inflation, and many foresee hiking their prices if costs continue to rise.
A survey among members of CNBC’s Global CFO Council — which represents a combined $5 trillion in market value — revealed that one-third of American CFOs will be forced to raise prices in the face of high inflation.
The survey also indicated that most executives see inflation as transitory. However, they do not believe that the central bank of the United States can effectively manage inflation in the near term:
Financial officers are not confident in the Fed’s ability to control inflation over the next 12 months. No U.S.-based CFOs taking the survey said they were “very confident” or “somewhat confident,” while 38% said they were “only a little confident” and 47% said “not at all confident.”
Executives across the globe expect that prices will continue to rise:
Over the next 6 months, the largest group of U.S. CFOs (57%) expect cost of labor to increase the most, with cost of raw materials cited by 38% of CFOs. Cost of labor forecasts in the U.S. far exceed the cost expectations in other regions. In the EMA region, 72% of CFOs expect raw materials to increase the most. In Asia Pac, the forecasts are closer (44% citing raw materials as biggest source of cost increase; 33% citing labor), but materials is still seen as the larger source of price concern.
“The good news is that most of the inflation we are seeing does appear to be transitory. The bad news is that it is more severe and longer-lasting than many, including the Federal Reserve, expected,” Grant Thornton economist Diane Swonk explained to CNBC. “There isn’t really any muscle memory for what we are seeing. It is the first time that workers have had leverage since the latter part of the 1990s. Add the surge in retirement and loss in immigration, which was sliding rapidly pre-pandemic, and shortages are going to be more common.”
The results of CNBC’s survey come two weeks after American businesses observed the largest-ever increase in the Producer Price Index (PPI) — a metric that tracks changes in input prices for domestic producers. As of May, the PPI has increased year-over-year by 6.6%. In January, February, March, and April, the year-over-year increases were 1.6%, 2.8%, 4.2%, and 6.2%, respectively.
Last week, Rep. Jim Jordan (R-OH) grilled Fed Chair Jerome Powell for the United States economy’s unstable inflation and high unemployment — the opposite of the Fed’s mandate to promote stable inflation and low unemployment.