The Conference Board anticipates that inflation could persist through 2023, even if pandemic-related disruptions and supply chain bottlenecks subside. This projection is based on several long-term factors, including high housing demand and tight labor markets.
Inflationary pressures are not solely pandemic-related; some are structural or policy-related. The core personal consumption expenditures price index (PCE), which is closely monitored by the Federal Reserve, rose 4.7% in the 12 months through November. It’s expected that core PCE might not peak until the second quarter and could remain above 3% into late next year, exceeding the Fed’s 2% target.
The Federal Reserve is planning to counteract these pressures by increasing the federal funds rate, potentially with four or five rate hikes this year. Even with these increases, the rates would still be considered accommodative.
Several persistent inflationary forces are identified, such as rising wages due to labor shortages in the U.S., a shrinking pool of workers aged 15 to 64, and ongoing semiconductor supply constraints. Additionally, increased demand for housing from Millennials, the transition to renewable energy, immigration restrictions, and reshoring of production are also contributing factors.
Concerns about inflation have become a primary focus for CFOs and other executives. The frequency of mentions related to price pressures has significantly increased in corporate discussions. CEOs worldwide, as surveyed by the Conference Board, foresee high price pressures continuing until at least mid-2023.
Inflation has been a prominent topic in recent earnings calls, impacting companies across various sectors, including McDonald’s. The fast-food giant experienced a rise in food and paper costs, anticipating a further increase in 2021, with the majority of the pressure expected in the first half of the year.
Despite these challenges, several factors could help slow down inflation, such as price competition among retailers, automation, greater efficiency, online shopping, and the emergence of remote and contract work, along with improved infrastructure.
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