Is inflation here to stay?

Companies face a mix of transitory and structural inflationary pressures, according to Fidelity International’s latest analyst survey. Although most Fidelity analysts believe inflationary pressures are more transitory, structural forces could keep pushing up prices even as temporary bottlenecks ease.

The inflationary pressures facing companies are for the most part more transitory than structural, according to our latest survey of Fidelity analysts. But although raw material prices are likely to moderate as bottlenecks abate, almost a quarter of our analysts report that inflationary pressures today are more structural. These findings suggest that companies are contending with a complex mix of both transitory and structural inflationary pressures.

Supply chain disruption may last longer

The nature of inflationary pressures varies by sector. Materials and consumer analysts are most confident that the inflationary pressures facing their companies are transitory, and many believe that prices should moderate as supply chain issues fade.

“Raw materials have been hard to get hold of because of supply chain disruption, driving up costs. This should normalise on a 12-month basis,” says one analyst covering North American and European materials companies.

Other analysts are less optimistic. Although bottlenecks will eventually ease, this will take time and some companies expect supply chain problems to linger. This month we also asked analysts about their outlook for inflation over the next 12 months. Over two thirds said they expected pressures to rise over the period.

“Freight cost inflation due to supply chain constraints should be largely transitory and we are likely to pass the peak this holiday season. But some raw material cost inflation from demand increases appears to need more time for supply to catch up and should persist for a while longer,” reports an analyst covering North American consumer discretionary companies.

Structural forces will drive up prices

Structural inflationary forces are also having an impact on many companies. “While we are seeing all of the normal transitory inflationary pressures for autos, there are some underlying structural pressures due to increasing semiconductor content in vehicles meeting constrained chip supply,” reports an analyst covering European industrials firms.

Wages and the cost of decarbonisation could also push inflation higher. “I think both raw material and labour costs are in a structural upward trend given the constrained supply of coal and steel amid carbon neutrality roadmaps and birth rate declines,” says an analyst covering Chinese utilities.

Some inflationary pressures are transitory but others will persist

With both transitory and structural forces at play, companies are contending with an inflationary environment that is far from straightforward. Any prolonging of supposedly transitionary pressures could increase expectations that inflation will be sticky, while structural drivers such as the cost of decarbonisation are likely to impact prices for far longer.