Inflation is no longer a leading concern for businesses, says Fidelity, with companies’ cost inflation set to ease over the next 12 months.
Fidelity’s latest annual Analyst Survey sought the view of 137 research analysts across its organisation to understand the mood among companies heading into 2024.
While the results suggested companies are facing several challenges, including geopolitical uncertainty and rapid advancements, they are growing more resilient to inflation.
“No one talks about inflation any more. Labour wages were the last sticky aspect but these seem to be normalising quickly as well,” says Brendan Cochrane, who covers North American consumer discretionary companies for Fidelity.
According to Fidelity, labour shortages have not evaporated entirely but where they do still exist, they are placing less strain on companies. In 2022, just over half of analysts believed labour shortages were expected to reduce earnings; now fewer than a third do.
Similarly, most companies have been able to pass on higher costs to consumers, although China has bucked the trend due to a combination of weak demand, falling property prices and high levels of youth unemployment. Falling prices for Chinese exports could further reduce cost pressures in regions like the US and Europe, said Fidelity.
Giuseppe Galoppo, Fidelity equities analyst with a focus on European IT companies, said companies went through a period of “very high staff attrition over 2021 and 2022 which led to strong age inflation. However, the big wave has moderated significantly and we are back to a normal level now.”
Fidelity said there are also signs that the challenges of the past few years have made companies more resilient.
Jonathan Neve, fixed income analyst at Fidelity, commented: “If airlines don’t plan well for their growth in capacity, they may struggle to find enough staff, leading them to either pay more in wages or cancel flights. This is exactly what happened in the summer of 2022, but one would hope that airlines have learnt their lessons and are planning accordingly. It may mean incurring slightly higher staff costs at the beginning of the year but that will ensure operational resilience.”
New technologies should also help companies to adapt, according to the survey.
Sukhy Kaur, fixed income analyst at Fidelity, added: “Given the increased use of digitalisation in the financial sector over the past couple of years, labour shortages would only have a moderate impact.”
