Inflation is a global problem and the move to tighten interest rates has begun.
A C-Suite Outlook 2022 report from The Conference Report cited inflation as global CEOs’ biggest concern. Globally, only “Covid-19-related disruptions” score higher on the list of external factors with the potential to disrupt economic recovery.
Conference Board data showed that 95 percent of CEOs based in manufacturing are facing rising costs on raw materials and labor due to supply chain hurdles and labor shortages, among other factors. Most have never experienced a wide-ranging inflation-driven crisis, and less than 40 percent believe their organizations are “well prepared” to cope with one. In such an economic climate, executives face decisions about sourcing, cash management and employee wages. Few executives highlighted changing vendors or sourcing partners as a viable option, likely due to limited raw material supply and logistics challenges being felt across the globe.
Government data shows that labor shortages disproportionately impact sectors not conducive to remote work, like manufacturing and retail. “Although firms are deploying various tactics to address labor shortages, including higher pay, signing bonuses, flexible work arrangements, automating jobs and tasks, and retaining older workers,” the report said, “a shrinking labor force may cause shortages to persist even beyond the pandemic.”
Now, however, interest is turning to interest rates.
On Thursday, the Bank of England (BOE) implemented its first back-to-back rate increase since 2004, raising rates 25 basis points to 0.5 percent in hopes of tamping down inflation. The move followed a 25 basis point increase in December to 0.25 percent from its historical low of 0.1 percent. BOE now expects inflation to peak at 7.25 percent in April, up from December’s 6 percent projection.
In the U.S., data last month showed inflation climbed to 7 percent in December, representing a new high since June 1982 and up from 6.8 percent in November. In comparison, inflation in January 2021 rose just 1.4 percent.
Separately, Federal Reserve chairman Jerome Powell in December said the nation is making “rapid progress” made toward “maximum employment.” The state of the jobs market influences when the Fed would scale back economic support. Most economists expect the Fed to start hiking rates in March with at least three additional increases this year, with some seeing as many as five or six, though that many increases could trigger a recession.
First-time U.S. unemployment claims filers fell 23,000 to 238,000 for the week ended Jan. 29, according to Thursday’s Labor Department data, marking the second straight weekly decline and suggesting the worst of omicron might be over.
Private-sector payroll data, however, signals a worrying trend, with jobs in this area shrinking by 301,000 from December to January, according to the latest ADP National Employment Report. Other services, where retail jobs are classified, shed 23,000 positions in January after adding 36,000 retail jobs the previous month.
The Labor Department’s report on January’s job market stats, which includes government jobs, is set to publish on Friday. Economists’ wide-ranging outlook spans 150,000 jobs added to as many as 400,000 jobs lost.
Certain factors that could make the January report a less reliable gauge of what’s going on with the labor market.
January job stats don’t always accurately reflect labor market trends, thanks to retail’s year-end temporary hiring spree to staff the peak season. The exodus of seasonal workers shows up in data for the first month of the year.
But this year’s January report factors in Omicron.
The Labor Department conducts its survey in mid-January, when Omicron cases likely were still spiking. That means anyone not collecting a paycheck could have been quarantining at home, or out sick. Or they could have been home for some other Covid-related reason, such as acting as caregiver to a family member with Covid or were at home because day care centers were temporarily closed due to lack of staff. When those factors are taken in account a weak January jobs report won’t necessarily indicate an economic slowdown.
Additional reporting by Kate Nishimura.