Inflation surge is on many executives’ list of 2022 worries

Concerns about rising prices skyrocketed in the past year, according to a survey of more than 900 global CEOs conducted by the Conference Board, a business research group. More than half of the CEOs expect price pressures to persist until at least mid-2023 after having registered as a low-level worry in the year-ago survey.

“Inflation is here," Honeywell International Inc. Chief Executive Officer Darius Adamczyk said in an interview. “We have to be very, very careful how it gets solved, too, because it’s a little bit like driving your vehicle. If you slam on the brakes too hard, we could see the other side of inflation, which is a recession."

Business leaders have been warning about inflation risks in the past year, even as Federal Reserve officials and most economists largely played down the breadth and persistence of rising prices. On Wednesday, the U.S. Labor Department reported that inflation finished 2021 at its highest level since 1982 with the consumer-price index up 7% in December versus a year ago, compared with 6.8% in November.

How large the Covid-19-related disruptions loom for global executives varies by geography, the survey found. U.S. chief executives cited labor shortages as their chief external concern for the coming year, followed by inflation and supply-chain problems. Covid-19 came in fourth.

Similarly, European CEOs ranked inflation as the top worry and Covid-19 disruption as 10th, below the expected impact of regulators. But CEOs in both China and Japan see Covid-19 having the greatest impact on their business this year.

The pandemic’s ranking in Asia helped push it to the top of the list of concerns among all CEOs surveyed globally, followed by rising inflation and labor shortages.

Dana M. Peterson, chief economist at the Conference Board, said the disparity is partly explained by different policy reactions to the pandemic, with countries in Asia more likely to use shutdowns to contain the virus, while Europe and the U.S. are generally trying to stay open using vaccines, testing and mask policies to quell outbreaks.

“It’s a very different view around management of the virus and what that means," she said. China’s large manufacturing base can’t work from home, while the U.S. economy is more service-focused. “It makes sense to me that Covid disruptions would rise to the top of the list for say China, whereas in the U.S., labor shortages are the topic du jour."

The survey was conducted in October and November with more than 1,600 c-suite executives responding, including 917 CEOs. Although the data was collected before the beginning of the Omicron outbreak, the survey’s authors say the answers likely wouldn’t change much, because companies were dealing with the Delta variant in the fall and the latest wave hasn’t caused panic or widespread shutdowns.

Earlier this week, an annual risk report from the World Economic Forum showed a significant increase in pessimism about global prospects, with executives and leaders worried about longer-term fallout from the pandemic. Many respondents expected the next three years to be characterized by consistent volatility and surprises.

In the Conference Board survey, 82% of CEOs globally said they are facing upward price pressure for inputs into their businesses. In China, producers are facing rising commodity prices in their vast manufacturing base, while Europe is seeing inflation related to energy and food prices. In the U.S., 59% of CEOs expect inflation to be elevated until at least mid-2023 or beyond.

“We’re going to have to catch this tiger before it gets too rampant," said Gerald Walker, CEO of the Americas unit of financial firm ING Groep NV. “It’s not pretty when it goes wrong."

Mr. Walker said inflation costs can be difficult to pass on, especially in the banking world. “Margins don’t go up because I’m paying people more," he said in an interview. “There are certain things that we have to be quite careful about with this, because it can erode the returns and profitability of organizations and that can be structural rather than transitory as well."

When it comes to their internal focus for the coming year, CEOs from all regions said attracting and retaining talent was the priority. The group also acknowledged that remote work would play a more prominent role even after the pandemic subsides.

A third of CEOs globally expect at least 40% of their post-pandemic workforces would remain remote, which is defined as working at least three days a week outside of the physical workplace. Among U.S. CEOs, 53% expect at least 40% of workers to work remotely.

The new flexibility comes as continued labor shortages are pushing U.S. companies to get creative in recruiting new employees. That demand is pushing up wages, a contributor to inflation that the survey’s authors expect to last longer than supply-chain problems.

“There is going to be continued pressure on wages and benefits and all the costs that go along with attracting and retaining workers," Ms. Peterson said. “Businesses are saying, this is going to be a problem not only this year, but next year and maybe even beyond that."