On Inflation: How Long Will It Last?
As inflation concerns increase globally, the United States leads G-7 countries with total inflation of 5.4% (y/y) - see chart below.
Also, from last week, are views from selected policymakers and industry leaders.
U.S. Federal Reserve
"Reports of input cost increases were widespread across industry sectors, driven by product scarcity resulting from supply chain bottlenecks.
"Price pressures also arose from increased transportation and labor constraints as well as commodity shortages. Prices of steel, electronic components, and freight costs rose markedly this period."
Uniliver CEO Alan Jope
"It is a once in two-decades scenario that we are seeing . . . we haven’t reached peak inflation yet ...
“We see inflationary pressures continuing through the first half of next year.”
Procter & Gamble CFO Andre Schulten
"Supply chains are under pressure from tight labor markets, tight transportation markets and overall capacity constraints
"Inflationary pressures are broad-based and sustained."
Nestlé CEO Mark Schneider
“What we see from the inflation front is that the situation is going to get worse and then of course we’re working on pricing to make up most of that.”
Chipotle Mexican Grill CFO John Hartung
"We're dealing with the same inflationary environment that all restaurants and really all businesses are dealing with nowadays.
“I don’t think inflation is going to go away in the next one, two or three quarters,
“For some offerings out there, there’s going to be a limit to what customers are willing to pay."
Danone CFO Juergen Esser
“Like just about everyone across the sector and beyond, we see inflationary pressures across the board …
“What started as increased inflation on material costs evolved into widespread constraints impacting our supply chain in many parts of the world
"We could see even higher inflation rates next year …"
OUR TAKE
Given the market distortion resulting from the pandemic (i.e., an economic slowdown, followed by a rebound), it is hard to determine if current inflation trends are transient or structural.
While inflation may be "transitory", heightened energy prices will likely persist through the winter - making inflation management more challenging.
Within the U.S., inflation of 5.4% is above the Federal Reserve's target of 2.0%. If this trend continues, the Fed will need to increase interest rates and/or adjust the money supply.
Globally, business leaders and policymakers will continue to focus on supply-chain issues and heightened costs (energy, materials, shipping, labor, etc.) to assess the resilience of businesses, consumers, and the economy.