60% of US Companies Plan to Raise Prices... Inflation Concerns Persist

US Richmond Fed and Duke University Study
Labor Supply Recovery Weakens, Slowing Inflation Decline

With more than half of U.S. companies planning to raise product prices this year, concerns are emerging that high inflation may persist for some time. The recent slowdown in the recovery of raw material and labor supply, which partially led to the easing of inflation, is also decelerating, raising expectations that the U.S. Federal Reserve's (Fed) interest rate cuts may be delayed beyond the market's anticipated timing.

On the 21st (local time), major foreign media reported that a joint survey by the Richmond Federal Reserve Bank and Duke University found that about 60% of U.S. companies plan to increase their product price hikes this year more than before the COVID-19 pandemic, which began in 2020.

The year 2020 marked the start of pandemic-driven liquidity supply that triggered global inflation. As the recent inflation rate has slowed, attention has been focused on whether companies will revert their product price hikes to the normal levels of 2019, before the pandemic. However, a significant number of companies are preparing to raise prices even more than they did then.

Thomas Barkin, President of the Richmond Fed, said in an interview with foreign media that while large retailers previously held the pricing power, manufacturers now have the upper hand over retailers. He explained, "Large retail companies are pressuring manufacturers to increase discounts, but their bargaining power has weakened compared to before COVID-19," adding, "Retailers are exchanging many opinions with suppliers (manufacturers) regarding transportation costs, labor costs, and deglobalization." He further noted, "It takes time for large retailers to negotiate with manufacturers about price increases."

In fact, manufacturers argue that price increases are inevitable due to rising raw material prices and labor costs. Earlier, P&G, the largest consumer goods company in the U.S., explained after its earnings announcement in October last year that "labor inflation is continuing across supply chains and costs." While large retailers previously held a dominant position to limit manufacturers' price hikes, their negotiating power over manufacturers is gradually diminishing.

Experts also analyze that, having experienced the pandemic and the Ukraine war, companies have become accustomed to passing the burden onto consumers by raising product prices amid soaring inflation.

The key issue is whether product price increases will lead to a slowdown in retail sales. President Barkin is closely monitoring whether consumers reduce purchases in response to price hikes. If retail sales do not decline despite rising prices, it could create a vicious cycle of corporate price increases and persistent high inflation, raising concerns. If inflation does not fall close to the Fed's target rate (2%), the timing of interest rate cuts from the current highest level in 23 years (5.25?5.5%) in the U.S. could also be delayed.

The New York Times (NYT) also cited the possibility of a recession due to high interest rates and concerns about a rebound in inflation as risk factors the day before. It noted that the recent easing of inflation was due to improvements in raw material and labor supply, but it is difficult to expect a similar level of recovery this year, which could cause prices to rise again.

The Wall Street Journal (WSJ) also assessed that there is limited room to ease inflation. The media reported, "Many workers took on side jobs to join the labor market in 2022 and 2023, which alleviated labor shortages and exerted downward pressure on wage increases," but added, "Without additional labor supply, it will be difficult for the inflation slowdown to continue."

President Barkin pointed out, "Inflation has now slowed, and we are not in a phase where the crisis is spreading extremely," but added, "Prices are still higher than in many cases, and this continues to pressure people."