How Environmental Conditions Plays Inflation
A reaction chain of events that unleashes uncertainty.
Nearly four out of five survey respondents expect inflation to remain above 3% through the end of the year 2023, with 36% believing inflation would be higher than it should be until the end of the year. This is informing CEOs' expectations about future expenses, which has implications for products' pricing, hiring, and compensation, as well as investing in people, technology, and equipment.
Other experts commented about the topic: "I believe people tend to project current conditions far into the future, and with inflation, it's impossible to predict when things will improve." Melissa Brown, and global head of applied research at financial analytics firm Qontigo, stated, "They seem to be getting worse."
Federal Reserve Chair Jerome Powell acknowledged the criticism of the current economy at the American Economic Association's policy conference on Monday 21. In prepared remarks, he stated, "Inflation is simply too high." "It is clear that monetary policy must be returned to a more neutral position as soon as possible." Powell also hinted that the Fed would consider interest rate hikes of more than a quarter of a percentage point, which is the normal increment.
"The factors that cause inflation are not going away anytime soon. Looking at the post-pandemic crisis of the world supply chain logistic, the supply chain is still struggling to ramp up. "About 50 ships are still stranded off the coast of Los Angeles, and delivery times are becoming worse," said Dan North, a senior economist at Euler Hermes North America.
Companies must also deal with a scarcity of and higher cost of labor, as well as components and raw materials. "The labor shortage is another issue that isn't going away anytime soon," North said. For the foreseeable future, several far-reaching demographic shifts, such as a reduction in immigration and the retirement of baby boomers, will keep the supply of employees limited.
Another key factor that is preventing the world to settles after the negative impacts of the pandemic is the invasion of Ukraine by Russia. This event has given gasoline to the flames of inflation. Food, transportation, and other consumer costs are all rising as oil, fertilizer, and other commodities become more expensive. Manufacturers and other service industries, such as travel, are also seeing greater expenses as a result.
Post-pandemic geopolitical volatility is predicted to shave more than half a percentage point off global economic output this year, with 8% expecting global GDP to decrease by more than one percentage point as a result. Experts forecast Russia's invasion of Ukraine will exacerbate supply chain bottlenecks.
"All this situation is going to put further strain on companies, combined with the problem of filling orders," said Ken Simonson, chief economist for the Associated General Contractors of America, a survey analyst. Environmental conditions for sure are going to put more pressure on prices at this time.
"Consumers can probably hold on for a while as long as we have a robust economy and steady or rising employment," Brown said, but there is a sense that this is a delicate balance, especially when interest rates climb and Americas have to pay more to borrow and spend money.
News source:
(2022, March 21). What happens when corporations expect inflation to stick around. NBC News. Retrieved March 24, 2022 from https://www.nbcnews.com/business/consumer/what-if-inflation-stays-high-business-leaders-nabe-survey-rcna20940
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