Survey Shows Companies Less Worried About Inflation

Inflation fears among executives have decreased sharply around the world in the past six months, according to the latest McKinsey global survey on economic conditions. At the same time many companies have scaled back hiring plans and taken some easy steps to become more energy efficient.

Respondents answered the survey in early September, after commodity prices had eased and Lehman Brothers (LEH) had filed for bankruptcy, but before the US government bailout of financial institutions.

Despite this ongoing turmoil and a notable lack of confidence in national economies, respondents indicate that many companies have some flexibility to cope: most of those seeking external funding have so far been able to find it, respondents who predict higher inflation are also likely to report that their companies will be able to raise prices, and a majority of all executives expect the productivity of their companies to increase.

Though many central bankers remain cautious, the executives’ expectations of higher inflation have started to recede: only 51 percent foresee it during the next six months, down from 72 percent six months ago. Further, inflation fears have eased markedly in China and India: 43 percent of the respondents in the former and 65 percent in the latter expect lower inflation, compared with only 28 percent of respondents overall. This finding is probably related to these two countries’ particularly high reliance on commodities.

Although executives indicate that their companies have greater pricing power, it isn’t translating into stability for workers. Almost 30 percent of the executives now expect their companies to shrink the size of the workforce in the next six months, up from 18 percent a year ago.  But 43 percent of the executives in energy expect hiring levels to rise—by far the most in any industry.

More than 60 percent of the respondents report that their companies have acted to become more energy efficient. Among the most widely used moves are two that can be made very quickly—using less energy to heat or cool corporate offices and reining in business travel. Longer-term options, such as shortening the supply chain, have been implemented less frequently. That is consistent with the findings of another recent survey: though executives report that rising energy prices rank among the top three issues influencing the supply chains of their companies, only 16 percent say that the problem is being addressed. The longer any single issue had affected the supply chains of companies, however, the more likely they were to have addressed it.

This suggests that if energy prices remain relatively high, companies will probably act in more complex ways to manage them.

Comments

[whidbey:]

Pure hooey. The inflation concerns can not be measured since people have not experienced sufficient inflation yet to know if it is affecting a business. They will all agree energy prices are inflationary, but now that energy has come down some they think inflation is essentially over. It is not, and the jury is still out, but I suspect they will come unglued when they see materials, labor and taxes rising, and then comes energy this winter. Not good to think about.

2008 Sep 24 06:11 PM