Why inflation may not go away anytime soon

By Matt Egan, CNN Business

America’s finance chiefs don’t think inflation will go away overnight.

Chief financial officers, on average, expect higher-than-normal cost increases to persist for eight to 10 months, according to a Duke University survey released Wednesday.

Some worry inflation will linger longer. About one in four CFOs expect elevated costs to last through most of 2022.

The vast majority of executives in the Duke survey indicate they have passed along cost hikes to customers.

The findings suggest that Americans may not get relief anytime soon from surging consumer prices. Consumer prices spiked in June by the fastest annual pace since 2008. Prices for used cars, washing machines and hotel skyrocketed.

The Duke survey, conducted in collaboration with the Federal Reserve Banks of Atlanta and Richmond, found evidence of widespread inflation. About 80% of CFOs reported larger-than-normal cost hikes that are expected to last for many months.

Almost 25% of CFOs reported passing through almost all of their cost increases to customers. By contrast, a similar percentage of executives said they didn’t pass along any cost increases.

Larry Fink and Jamie Dimon sound worried

The Federal Reserve and White House have repeatedly said they expect inflation will be temporary, with pricing cooling off as the economy reopens and supply catches up to demand. And there is some reason for optimism, given the cooling off of lumber and wholesale car prices (what dealers pay manufacturers).

However, some are less confident.

“I do not believe inflation is going to be transitory,” BlackRock CEO Larry Fink told CNBC on Wednesday.

Likewise, JPMorgan Chase CEO Jamie Dimon said Tuesday that inflation may not be temporary and could be stronger than the Fed anticipates.

Of course, no one can say for sure given the fact that there is no playbook for inflation following a once-in-a-century pandemic.

How the worker shortage is slowing the recovery

Despite the inflation jitters, CFOs surveyed by Duke University are getting a bit more confident. The average optimism ticked up to 74.9, on a scale of 0 to 100. That’s up from 73.2 during the first quarter. CFO optimism about the US economy also inched higher.

Yet there is also new evidence that labor shortages are slowing the recovery.

Three out of every four respondents to the CFO survey indicated difficulty in finding new employees for open positions. That jives with the record-high number of job openings reported in the latest government statistics.

Among the firms struggling to find workers, slightly more than half reported that these problems cost their companies revenue. The impact to revenue was magnified among smaller firms that have fewer than 500 employees, the survey found.

Fed researchers estimate that labor shortages have reduced economy-wide revenue by 2.1%, translating to a hit of roughly $35 billion on an annualized basis.

“The CFO survey results suggest that labor shortages have been a significant burden on firms that could further restrain aggregate economic growth if not resolved,” Fed researchers said in a blog post.

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