Middle market trend watch: Dealing with pricing pressures
THE REAL ECONOMY |
With the economy poised to embark on a period of robust growth, middle market businesses have been wrestling with questions over pricing amid still-constrained supply chains.
A subindex of February’s RSM US Middle Market Business Index survey offers some answers.
First, firms that have not been able to pass along price increases are somewhat skeptical about being able to do so. While a majority intends to try, this may prove difficult because of wage pressures in a global economy, among other factors.
Second, middle market firms will need to focus immediately on increasing efficiencies and engage in productivity-enhancing investment to address rising input prices.
Third, this data does not point to an immediate and permanent increase in the price level across the economy. Rather, it shows a transitory increase in inflation caused by year-ago base effects.
Fourth, the recent backup of Treasury yields along the long end of the maturity spectrum looks to be overdone. We would not be surprised if Federal Reserve begins to use its potent policy toolbox to begin dampening rates along the long end of the curve.
Finally, wage pressures, a key component of rising inflation, have not shown up in the economy, and this was confirmed in the RSM survey. Only 32% of firms reported an increase in compensation, 21% noted a cut and 45% stated that wages and salaries remained unchanged.
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