Deloitte Belgian CFO Survey Q1-2011
Inflation has been steadily rising since the middle of 2009 and year on year inflation in Belgium reached 3.5% in February. Fuel and energy prices have driven inflation up. Going forward, the Belgian Federal Planning Bureau predicts similar inflation percentages.
CFOs expectations on inflation are somewhat lower: more than half of the CFOs expect the Belgian inflation rate to be in the range of 2 to 3% (and hence closer to the target of just under 2% of the European Central Bank). 37% expect an inflation rate in the range of 3 to 4% as anticipated by the Planning Bureau.
The Deloitte UK Survey for the first quarter reported the rising cost of raw material costs and the squeezing consumer spending power as the biggest threats of high inflation. Because of the automatic wage indexation, Belgian CFOs are mainly concerned about higher labour costs next to rising input or material costs. The upside is that Belgian CFOs see the possible squeeze on consumer spending power as a much lesser threat.
“Zero interest rate policy coupled with quantitative easing has produced the easiest Federal Reserve monetary policy in history. Inflation should follow. Credit destruction and deleveraging are inherently deflationary. Falling prices should be the order of the day. Unprecedented budget deficits have typically preceded a rise in inflation. Massive expansion of industrial capacity in China and India should put downward pressure on global prices. Improvement in the Chinese and Indian standard of living is putting upward pressure on global commodity prices and is inflationary.“
“From an economic perspective, there would seem to be compelling signals for a forecast in either direction (inflation or deflation). This keeps economists fully employed but offers scant comfort to business leaders facing what may be an unprecedented environment.“
“As the economy bounces between recession and recovery, financial executives have to make a bet between whether the economy, their industry and their business will experience rising prices going forward or whether they will have to grapple with the balance sheet and operational effects of deflation. They will have to choose wisely as this has the potential of being a bet-your-business risk.”
(Source: Deloitte Review 2011 - Issue 8, The Great Debate: Inflation, Deflation and the Implications for Financial Management, by Carl Steidtmann, Dan Latimore and Elisabeth Denison)