Your Super Bowl party is going to cost a lot more this year

New York (CNN Business)The Federal Reserve has expressed confidence inflation will get under control soon. Business leaders are not so sure.

Nearly 75% of CEOs say upcoming interest rates hikes are unlikely to curb inflation as quickly as the Fed would like because supply constraints and wage hikes will persist, according to a survey released by the Conference Board and The Business Council on Thursday.

Just 21% expect rate hikes — the Fed has signaled about three are in the cards this year — to reduce inflation.

And much like on Main Street, inflationary pressures continue to weigh on the mood in the C-Suite.

CEO confidence is down for the third quarter in a row, according to the Conference Board survey, which was fielded January 17 through January 31. The measure of confidence now stands at 57, down from 65 at the end of last year. While that is still in positive territory, it is well below the record high of 82 set in mid-2021.

“CEO confidence fell further to start 2022 as business leaders struggle to contend with inflation, labor shortages, and yet another viral surge,” Dana Peterson, the Conference Board’s chief economist, said in a statement.
About 40% of the CEOs surveyed said inflation is unlikely to cool off as fast as the Fed wants because supply constraints are the primary source of inflation. And 34% expect wages will still increase due to the tight labor market, and those costs will need to get passed along.

Passing costs along to customers

According to the survey, 83% of CEOs report problems with attracting qualified workers, up from 79% in the fourth quarter. And 85% of CEOs now expect to raise wages by 3% or more over the next year. That’s up from just 36% a year ago.
Consumer prices soared by 7% in December from the year before, the fastest pace in 39 years. New numbers due out on Thursday are expected to show inflation accelerated in January to 7.3%.

Half of the CEOs said they expect economic conditions to improve over the next six months, down from 61% in the fourth quarter. Almost a quarter (23%) expect conditions to worsen, up from 13% in the prior quarter.
Business leaders’ relative pessimism on inflation may stem from the fact that many of them plan to continue to raise prices to offset the elevated costs they face.
About 75% of the CEOs indicate they expect to pass along rising transportation and labor costs within the next year.
For example, HVAC system-maker Carrier Global announced this week it will raise prices by roughly $1 billion this year. The company has struggled to keep up with demand as it grapples with computer chip shortages and worker absenteeism.
“We assume inflationary pressures exiting last year will continue this year. We are going to price on that assumption,” Dave Gitlin, Carrier’s CEO, told CNN in a phone interview. “If inflation subsides as the year goes on, that will be a benefit to us.”

Why inflation expectations matter

The pessimism from business leaders about the inflationary outlook jives with the sentiment from the public.

Nearly eight in 10 Americans worry inflation will get worse over the next six months, according to a Gallup poll taken between January 3 and January 13. Fifty percent expect inflation will go up “a lot,” while just 9% anticipate costs will go down.

Expectations for continued high inflation pose a problem for the Fed.
The risk is that if consumers anticipate prices will stay elevated, they will shift their behavior by pulling forward purchases, amplifying high levels of demand. Businesses will similarly stock up on supplies and ramp up pay to keep and attract workers. It can become a self-fulfilling prophesy.
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