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Inflation Concerns Rise Among Manufacturers

Yet another manufacturing survey this month has warned that increasing commodity prices are a serious threat to growth prospects in the US economy. More than half (66 percent) of the respondents in a national survey of US manufacturing CFOs and senior controllers conducted by Grant Thornton LLP said that their companies intend to raise the sales price of their goods over the next six months, up from 35 percent six months earlier.

The results are not surprising, said Wally Gruenes, Grant Thornton’s national managing partner for Consumer and Industrial Products, in a press release:

This was to be expected given the increase in commodity raw material costs experienced by most manufacturers over the last 12 months. With the precipitous increase in these commodity prices in recent months, manufacturers have no choice but to pass along such increases to their customers. While they have done a good job of improving operational efficiencies and driving down costs over the past three years, manufacturers simply could not drive down their conversion costs enough to absorb these raw material price increases.

On the upside, 47 percent of CFOs surveyed expect company hiring to increase (only 18 percent intended to increase head count six months ago).

Respondents were asked to identify which type(s) of pricing pressure they were most concerned about, and could select more than one answer. Respondents were most concerned about raw materials such as cotton, metals, and petroleum-based product (96 percent), followed by energy (58 percent); employee benefits (58 percent); company insurance, not including health care (2 percent); and other (10 percent).

With the exception of cotton, all of the raw materials of concern have an impact on the electronics supply chain. None of the respondents expect prices to decrease; 34 percent expect prices to remain the same. Additionally, 80 percent of those surveyed believe the recent earthquake in Japan will have an impact on the US economy.

12 comments on “Inflation Concerns Rise Among Manufacturers

  1. Eldredge
    April 27, 2011

    With some evidence that the economy is improving, lead times for components are likely to increase, providiing cost pressure for those who need their components expedited. Couple that with increasing energy costs, and there is cause for concern.

  2. Parser
    April 27, 2011

    Concern is a state of mind reflected in anxiety and there should be a little use of it.

    Concern can become a tool if we could create an action, which would either postpone inflation or divert it. There are always some kind of natural inflation due to raw materials availability and maybe we need to push space exploration but until then the inflation will always there. 

  3. jbond
    April 28, 2011

    Inflation is a natural byproduct of growth, it will always be there. Most commodities we use have limited supply. Yes some of the materials might be around for another few decades or even a century, but as the actually supply reduces, the cost always rises. Some companies will be better served to find alternative materials if possible. Inflation is not going anywhere and people’s concerns should be more focused on how to best keep their costs under control.

  4. eemom
    April 28, 2011

    Unfortunately the raw material cost increase will have a bigger effect on smaller companies who cannot afford a smaller profit margin.  I agree that inflation is not going anywhere and it is necessary that companies have alternate product and supply plans to survive  in this ever changing environment.

  5. Taimoor Zubar
    April 28, 2011

    I think the smaller companies would not be able to survive the pressure of inflation as they do not have surplus funds to keep the business running when there is shortage of cash. The bigger corporations will be able to survive though.

  6. SunitaT
    April 29, 2011

    Inflation has become matter of global concern. Not only increasing commodity prices are a serious threat to growth prospects in the US but also its serious threat to global growth prospects. And the fact that Japan needs to rebuilt its economy might makes things even worse.

  7. Barbara Jorgensen
    April 29, 2011

    I've been reading a lot lately how inflation is driven more by stock market sentiment rather than actual prices. It's true that the prices of metals–especially copper–are going sky high and gas and oil prices are up–but I am not hearing about these issues on earnings calls. Fluctuations in price are part of doing business–it's the response of the stock market that seems to cause the most concern. The disconnect between market sentiment and actual results seems to be widening, and I view market fluctautions with more skepticism than I used to.

  8. Himanshugupta
    April 30, 2011

    It seems that inflation or the market sentiments are driving the cost of raw material high. I was reading quarterly report of Samsung. Even though the net income has gone up by 7% on year-on-year basis, the net profit has gone down by 30% year-on-year basis. Most of the loss in net profit was due to high raw material cost. It seems that inflation is not equally distributed.

  9. Himanshugupta
    April 30, 2011

    The burnt of bad economy anyway affects the smaller companies first. They have to look for ways to keep whatever cash reserve they have safe. These times are as hard: the price of the raw material is going high, there is short supply of parts and there is inflation.

  10. hwong
    April 30, 2011

    @tirlapur I actually believe that the rebuilding of Japan will require materials such as steel copper and other raw materials. That will stimulate economy growth. This may not lead to inflation. For example, steel companies in the u.s due to the fact that people are not investing. Hence when Japan starts to execute the rebuild efforts, this will increase demand for the laggard commodity

  11. Ms. Daisy
    April 30, 2011

    Rich do you really believe that?

  12. Ms. Daisy
    May 2, 2011

    Would keeping cash reserves not be a bad idea if there is inflation?

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