Dive Brief:

• Concern among CFOs and accountants about surging operating costs rose to the highest level since early 2019, a survey found, as rebounding demand collides with a pandemic-induced disruption in supply chains and stokes inflation.
• “Concerns on this [operating cost] measure more than doubled over the course of last year and seem likely to stay elevated in early 2022,” the Association of Chartered Certified Accountants (ACCA) and Institute of Management Accountants (IMA) found in a survey of 2,471 members, including 150 CFOs. 
• “Some sectors are now experiencing rising wages as employers attempt to fill vacancies,” the ACCA and IMA said, noting that energy and transport costs have increased in recent months as well. “As wages are the largest element of costs for most firms, sustained rises here would add further to cost — and inflation — concerns.”

Dive Insight:

CFOs confront price pressures across two fronts — the highest inflation since 1982 and a “battle for talent” that has spurred wage increases.

The tightest labor market in decades prompted a 5.8% increase in private sector hourly wages in 2021, according to the Labor Department.

Facing labor shortages, most CFOs and accountants would probably support an increase in wages and other compensation, ACCA Chief Economist Michael Taylor said.

Indeed, U.S. companies plan to raise pay 3.4% this year as they compete to attract and retain workers, Willis Towers Watson found in a survey.

“Higher compensation for existing workers is more cost effective than the cost of replacing workers who have quit for higher pay elsewhere,” Taylor said. Companies can take a “strategic and holistic approach to talent retention” by conducting staff surveys and interviews to identify why employees quit.

Regarding inflation, the consumer price index rose 7% last year while the producer price index for final demand, a measure of what suppliers charge, jumped 9.7% in the largest calendar-year increase since data were first calculated in 2010.

“Energy prices may level off in coming months but we note the recent renewed strength in oil prices,” Taylor said in an email response to questions. “Transport costs, in the form of container shipping from Asia to the U.S., have eased back in recent weeks and this is likely to continue in the first half as supply and demand comes back toward balance.”

Overall, though, “we expect upward pressure on costs to persist through the first half of the year,” Taylor said, noting that commodities such as lumber, nickel and copper “have recently shown renewed price strength on the back of optimism about the global economy in 2022.”

In the face of high inflation, CFOs and accountants in coming months will probably favor raising prices to sustain profit margins, Taylor said. “Where this is not possible, the focus is likely to be on controlling non-labor costs.”

More than half (55%) of CEOs worldwide predict high price pressures will persist until at least mid-2023, the Conference Board said this month, noting that C-suite executives have elevated inflation to their No. 2 external threat from the 22nd ranking a year ago. They still consider the pandemic to be the top threat.

“Inflation concerns are skyrocketing,” the Conference Board found in a survey during October and November of 1,614 C-suite executives worldwide, including 917 CEOs. Only 38% of CEOs believe their business is well prepared for an inflation-related crisis.

CFOs and accountants view the coronavirus and supply shortages as the top two risks and expect that “global growth will continue, but at a modest pace,” the ACCA and IMA found in the survey conducted from Nov. 24 until Dec. 8.

Global output this year will probably increase 4%, with “reduced household savings offsetting withdrawal of COVID-19 fiscal support, easing of supply shortages, continued growth in levels of employment and waning of the COVID-19 crisis helped by progress with vaccinations,” the ACCA and IMA said.

The World Bank this month forecast that global growth will slow from 5.5% last year to 4.1% in 2022 and 3.2% next year. “The global economy is entering a pronounced slowdown amid fresh threats from COVID-19 variants and a rise in inflation, debt, and income inequality.”

The U.S. economy will probably expand 3.7% this year and 2.6% in 2023, the World Bank said.