CFOs are seeing more signs of inflation

PepsiCo CFO Hugh Johnston said on CNBC on Tuesday that he’s expecting another round of price increases. “I expect we’ll probably see a little bit more pricing increases in the first quarter of next year as we deal with the fact that input costs are just higher,” Johnston said. “That’s just the reality for us and everybody else.”

A cross-industry survey released by Gartner today found that 61% of CFOs have responded to higher prices by passing costs on to customers. Survey respondents are from North America (68%), the U.K. (15%), and Asia (17%). Gartner’s report points to specific types of input price inflation—the increase in prices of inputs required to produce and deliver products, such as labor and raw materials. About 60% of the 111 finance chiefs surveyed said their companies experienced wage inflation in the second quarter of 2021. That is almost double the amount compared to the previous quarter, according to the global research and advisory firm. Although CFOs pointed to wages as the top form input price inflation, raw materials and commodities came in a close second at 59%. 

“A war for talent and significant wage inflation is beginning to emerge,” Robert Walters, CEO of the London-based corporate recruiting group named after him, said in July, Reuters reported. In many of the company’s global markets, including the U.S., U.K., and Japan, demand for workers was outpacing supply, Walters said. In the U.S., a shortage of workers has caused major companies, like Walmart and Chipotle, to increase wages to stay competitive.  

Gartner’s report also found that 74% of CFOs surveyed are now concerned about the possibility of lower profitability due to margin pressures. At the onset of the pandemic, some steps organizations took to preserve cash flow may have contributed to current supply and service challenges, the firm noted. Consumer prices rose 5.3% over the last 12 months ending in August, according to the latest report from the U.S. Bureau of Labor Statistics. That’s the highest reading since August 2008, Fortune reported. Federal Reserve Chair Jerome Powell acknowledged on September 28 that inflation has remained higher for longer than he expected.

Before passing on costs to consumers, CFOs should first assess if input price inflation is temporary and if competitors are raising prices. There needs to be a “clear understanding of their customer bases’ price sensitivity and profitability,” according to Gartner. To offset wage inflation, Gartner advises companies to look further than traditional talent pools—think freelancers and those who are re-entering the job market after time off. And for remote workers who relocate to an area with a lower cost of living, CFOs can consider recalibrating their salaries, the firm advises. 

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See you tomorrow.

Sheryl Estrada
sheryl.estrada@fortune.com

Big deal

The latest Mastercard SpendingPulse report released on October 6 found U.S. retail sales excluding automotive and gasoline increased about 5% year-over-year in September. And even as consumers return to brick-and-mortar stores, e-commerce sales continue to grow about 12% year-over-year. The data is based on aggregate sales activity in the Mastercard payments network combined with survey-based estimates for other payment forms, like checks and cash, according to the report.

Going deeper

It's a new era for mental health at work, a report in Harvard Business Review published on October 4, compares how mental health has been addressed in U.S. workplaces before and during the pandemic. The authors of Mind Share Partners’ 2021 Mental Health at Work Report found the prevalence of mental health challenges increased from 2019 to 2021, and "younger and historically underrepresented workers still struggle the most," according to the report. 

Leaderboard

James M. Kempton was named CFO at Smith Micro Software, Inc., effective November 3. Kempton joins Smith Micro from L.B. Foster Company where he serves as corporate controller and principal accounting officer. Prior to joining L.B. Foster in February 2020, Kempton served as EVP and CFO at Caliburn International of Reston, Virginia. He also held executive leadership positions at Michael Baker International and Michael Baker Corporation. Kempton began his career with Ernst and Young.

Neil Watanabe was named CFO at Loop Media, Inc., a multichannel streaming platform. Watanabe was most recently principal of Watanabe Associates, where he provided senior financial and accounting leadership to various companies. He was previously CFO at CarParts.com, Inc., and CFO at PetSmart Inc. Watanabe also worked in financial and operational leadership roles at National Stores, Inc., Anna’s Linens, and Shoe Pavilion.

Overheard

"We just can’t wait until the last minute to resolve this. We are simply playing with fire right now, and our country has suffered so greatly over the last two years."

—Jane Fraser, CEO of Citigroup, said in discussion with President Joe Biden and other business leaders on October 6 during a meeting about the impact on the economy if the U.S. hits the debt limit.