Communications

As Peter Coy notes in a recent New York Times article, there are three general forces propelling today's inflation of roughly 9% per annum.

One such force is demand for goods and services that exceeds available supply, attributed primarily to excessive government stimulus packages. Another is lack of sufficient supply to meet demand because of disruption in the flow of products and commodities resulting from repeated pandemic lockdowns and the war in Ukraine. A third is corporate price markups as large corporations take advantage of strong demand.

Attempting to assign relative responsibility to each of these three forces remains a highly unsettled issue. Lately, much attention has been directed to corporate markups, but a recent paper from the Roosevelt Institute, a liberal think tank, suggests otherwise. The paper concludes that corporate markups have, indeed, been rather pronounced among some corporations but should be considered as a supplement to the basic and predominate forces driving inflation - strong demand and insufficient supply.

In addressing the issue of corporate markups, the authors of the study used Compustat data from 1955 to the present. They focused on operating profit margins defined as revenue less cost of goods sold. They found that corporate markups were widespread across many industries and many different sized companies, which suggested markups in response to strong demand triggered by stimulus programs. They also found that markups sharply increased in industries that experienced supply disruptions.

The most pronounced corporate markups, on the other hand, were primarily limited to large corporations that had used their pricing power before 2021 to increases prices, which they repeated in 2021. Strong demand especially opened the door for corporations to exercise their pricing power, if, indeed, they had such power.

The Federal Reserve may tame inflation via its interest rate increases. Resolution to supply chain issues may have to await more effective control of the pandemic and an end of hostilities in Ukraine. But tackling corporate markups by companies that enjoy pricing power presents a different challenge, which basically boils down to increasing the competition these companies face in their marketplace. But increasing competition is a very long run endeavor, if it can be achieved at all given entrenched barriers to entry. Jawboning from the Bully Pulpit might help in the short run but only in the short run.

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As The Economist notes in a recent commentary, the Federal Reserve is determined to convince consumers, the business community, and the financial markets that it is serious about slamming the brakes on inflation. It fears that if the public expects continued high inflation, these expectations will trigger a wage / price spiral that leads to progressively higher expectations about wages and prices, which leads, in fact, to higher wages and prices. Once such expectations become part of the public mentality, it usually requires very drastic action by the Federal Reserve to bring inflation back down to acceptable levels.

Presently there are four groups in the U.S. that the Federal Reserve needs to persuade that, come what may, it is committed to reducing inflation to the 2% per annum target.

• Professional forecasters.
• Financial markets.
• Consumers.
• The business community.

The first two groups generally agree that the Federal Reserve will work price increases down to its announced 2% target over the next twelve months. However, consumers have a different view. They expect inflation to run a bit more than 5% by the end of the next twelve months. Companies that have recently coped with increasing commodity prices and labor wages expect inflation to be even higher at the end of the next year.

So, either the Federal Reserve's message is not credible to two of its four target audiences, or two of the four target audiences pay little attention to the Federal Reserve. Research suggests the latter. A great number of consumers and companies pay little attention to the Federal Reserve and its pronouncements. Further, their interest in the Federal Reserve and how it works seems marginal at best. For example, a recent Economist / YouGov poll found that twice as many people believed increasing interest rates pushed up inflation as those who did not.

There are no easy answers to the messaging issue. Consumers and companies form opinions from their experiences in the marketplace. So long as consumers are paying increasingly higher prices for goods and services, it stands to reason they will expect a continuation until events on the ground convince them otherwise. The same holds with the business community. Inflation targets are one thing. The actual cost of products, commodities, and labor is another. Business success depends greatly on identifying input costs and their likely movements in the near future. Inflation targets are interesting but rather useless unless confirmed by actual events.

A recession would get everyone's attention, of course. It remains to be seen whether the Federal Reserve can thread the needle and reduce demand sufficiently to cool off inflation without triggering a recession. Hopefully, improved Federal Reserve messaging to its four target audiences can help it engineer a soft landing.

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In a recent review, The Economist highlights a series of results emerging from a study conducted by the Maryland and Delaware Enterprise University Partnership about employee time wasted on pointless tasks. Approximately 5,000 office workers in the U.S. and U.K. participated in the study. Time spent on meetings were excluded from the study on the basis that they may be useless for many employees, but they are not pointless, as a general rule.

We can certainly relate to every pointless task noted and addressed. For example, the study found that correcting typos absorbs an average of 20 minutes in each worker's day. Over a 45 year working career, these 20 minutes translate to 180 days of wasted time. Interestingly, the words or phrases most frequently misspelled are "thnaks", "teh", "yuo", "remeber", and "bets wishes".

The average office worker also wastes roughly 145 days over his or her career logging in, usually triggered by security issues. Workers mistype passwords, fail to remember passwords, absorb time changing passwords, or waste time reviewing and confirming user information.

Once a worker has successfully logged in, the pointless tasks may subside but do not disappear. Office workers waste time closing repeated pop-up ads, confirming or denying suggested software updates, searching for the mute button to shut down an audio message, and sorting through and deleting old emails.

Then there are the wasted minutes and hours attempting to format Word files or properly express Excel functions and formulas, which usually entails a series of trial and error attempts before the task is completed. As The Economist notes, Shakespeare wrote "King Lear" in less time than an office worker spends over his or her career changing font sizes.

If nothing else, the study illustrates the great value of a skilled typist with a good working knowledge of the English language and a decent memory.

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On Wednesday, July 13th, Shockproof! Training conducts the first of four weekly sessions for the Credit College Course on Credit Basics. The course is designed to provide inexperienced credit administrators, branch managers, and business development officers with the key analytical tools necessary to determine whether to pursue a lending opportunity.

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• The company's prospects for meeting the two necessary conditions for business success, which are sufficient profit and sufficient cash flow to service its interest-bearing debt.

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