— This is the script of CNBC's news report for China's CCTV on June 29, 2021, Tuesday.
CNBC surveyed 41 members of the CNBC Global CFO Council between June 1st and June 16th. They represent some of the world's largest companies from a variety of industries, and collectively their market cap exceeds $5 trillion. The survey shows that inflation is the second biggest risk just behind Covid-19. And 20%, or one-fifth, of the respondents, cite inflation as their biggest concern.
Over the next 6 months, 57% of the U.S. CFOs expect the cost of labor to increase the most, while 38% cite the cost of raw materials. Relatively speaking, CFOs of American companies worry about labor costs far more than their counterparts in Europe and Asia. In the EMA region, 72% of CFOs expect raw materials to increase the most. In Asia, 44% of CFOs share that view. To respond to the rising costs, 22% of CFOs say they may need to hike prices while 34% say they are already doing so. That means inflation will go up in various regions.
Whether or not inflation is transitory is a topic under heated debate in the financial market. Though Fed chair Powell insists that inflation will moderate as the strains on the global supply chain ease, CFOs show little faith in the Fed's ability to control inflation over the next 12 months. No U.S.-based CFOs taking the survey say they are "very confident" or "somewhat confident," while 38% say they are "only a little confident" and 47% claim "not at all confident." In comparison, CFOs outside the U.S. have higher confidence in the Fed.
The CNBC Global CFOs survey is conducted every quarter. Last year's surveys showed that inflation was still a remote concern as none of the respondents listed it as the top worry. Starting the first quarter this year, worries started to surface with 2% of the respondents citing inflation as the biggest concern. In the second quarter, the percentage jumped to 20%. Inflation seems to have come more rapidly than expected. The lack of confidence among CFOs in the U.S. could post-challenge to Fed's mandate to stabilize prices. Some market pundits worry that the Fed may be behind the curve in inflation control, which could lead to another round of economic recession.
Mohamed El-Erian
Chief Economic Advisor at Allianz
"Every day, I see more evidence of inflation not being transitory, and I am concerned that the Fed is falling behind, and that it may have to play catch up. And history makes you very uncomfortable. If you end up in a world in which the Fed has to play catch up. Normally, we end up with a recession because you have to slam on the brakes as opposed to slowly taking your foot off the accelerator, which is what I believe is going to happen.  "
Besides Powell of the Fed, ECB president Christine Lagarde also believes inflation is transitional. However, after the Hungarian National Bank announced the decision to raise the interest rate, central bank governors of Germany and Austria began to openly debate the prospect of winding down ECB's stimulus programs. We will keep a close eye on how major central banks deal with the rising inflation.Â