Industry Executives: Inflation Is Nearing Its End
As the Fed is poised to raise interest rates, U.S. executives polled by Kearney expect the duration of the current inflationary cycle to be nearing its end. And more of those polled see a positive outcome in the post-inflation period than executives surveyed in prior reports, last November and August.
The report’s authors noted two main types of inflation: cost-pull inflation, which is fueled by an increase in input prices, and demand inflation, which is driven by demand in excess of supply. And while the impact of inflation can include higher operating costs, higher debt costs, and negative impacts on a company’s P&L, Kearney researchers said positive inflation outcomes include renewed innovation cycles, a reset of stale categories, pricing flexibility and investment opportunities, among other factors.
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In this survey, Kearney said 48 percent of respondents “are confident that the current inflation cycle is ‘positive.’” This compares to 47 percent in the November 2022 report and 38 percent in last August’s poll.
More than 350 executives were surveyed across retail, health care, auto, technology and banking sectors.
Greg Portell, lead partner of global markets at Kearney, said while some degree “of inflation is a necessary part of economic growth, as we’ve seen, not all inflation is positive, and the benefits it can yield are limited. Cost-pull inflation can lead to operational impacts such as higher inventory and labor costs, while demand inflation can distort financials and raise debt costs. Having taken a negative course for some time now, what we’re now hearing from the executives we talked to is that the current inflationary cycle is more positive than negative.”
The report’s authors noted that executive sentiment regarding inflation “has warmed even as inflationary factors continue to have an impact on larger indicators and national response. In particular, pricing and supply chain issues continue to be disrupted as businesses get on their feet post-pandemic.”
The report also stated that the firm’s research and analysis “lays out unpredictable patterns as GDP has stabilized; pandemic measures, including $1.6 trillion in pent-up savings, still working their way through the economy; the Fed’s speedy moves to raise rates and cool particular portions of the economy, as well as what’s likely next, and companies switching from reactive to proactive pricing programs.”
Portell added that while the report’s findings show that core inflation triggers have shifted, “they continue to influence economic trends such as unpredictable GDP [gross domestic product], an uncertain labor market, and supply chain whiplash. Nonetheless, executives feel that ‘the end is in sight.’ While they may be overly optimistic on timing, inflation seems to be evolving into more of a short-term than a long-term problem.”
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