Spotlight on inflation: CFOs are rattled by higher costs & bearish on growth

CFOs’ view of the economy and their companies’ growth outlook over the next six months took a dive as summer faded into autumn.

Rising prices are to blame, according to the latest CFO Survey by the Richmond Federal Reserve and Duke University’s Fuqua School of Business. Companies experienced a 7.3% increase in the core Producer Price Index (PPI) because transportation, warehousing and distribution prices surged. Keep in mind the PPI doesn’t include food and fuel prices, so that 7.3% figure is a tad misleading.

Chances are this figure won’t surprise you: 80% of CFOs expect inflationary pressure to continue through next year. Twice as many companies are grappling with “abnormally high” price increases since last year.

The Federal Reserve raised interest rates again in September, but the hikes don’t appear to be driving consumer spending or taking a significant bite out of inflation.

Hoping for the best but expecting a recession

The feds aren’t calling the current economic climate a recession but plenty of CFOs are operating as if we’re already in one or a significant downturn’s just around the corner.

“CFOs on average [now] expect real gross domestic product to grow 0.9% over the next 12 months, down from an expectation of 1.5 percent last quarter,” according to the Richmond Fed. 

It’s a small sample for sure, but about 7% of the most pessimistic respondents are bracing for negative growth rates of negative 3% or worse over the next year.

One ray of sunshine: Companies revised their unit cost growth for the year down to 8.9% from 10.2% in the 2nd quarter. CFOs are passing higher costs along to customers, for sure, but many focused on long-term viability have already started tightening the belt in whatever areas they can.

What are CFOs worried about most?

So what’s specifically keeping your peers in finance up at night? Here’s what the Richmond Fed’s quarterly survey found inflation tops the list:

1. Cost pressure
2. Labor quality and availability (CFOs’ No. 1 concern in the 2nd quarter of 2022)
3. Supply chain problems (Hurricane Ian is certain to make this a bigger woe for companies reliant on Florida suppliers)
4. Market demand and sales & revenue
5. Non-labor costs
6. Monetary policy
7. Overall health of the economy
8. Labor costs
9. General
10. Access to credit and funding

https://www.cnn.com/2022/09/27/economy/economy-inflation-savings/index.html