Thanks again to those that participated in the survey and contributed to the production of meaningful results.
Q2 2011 Theme – “A Nation In-flation”
Based on survey results, nearly half of all respondents (48.3%) believe that inflation is already here. Given the lopsided response, we immediately took note of the survey sentiment and informally followed up with a few respondents. The message from these secondary respondents was clear: manufacturers are seeing raw goods prices rising, distributors are seeing supplier prices creeping up and professional service providers are feeling wage-pressures from their employee bases.
How does this compare to economic data from our friends at the Institute for Trends Research? Based on July’s ITR Trends Report, the Consumer Price Index is up 1.8% from one year ago (12 month moving average basis) and the monthly index is 3.6% higher than one year ago. Put in perspective, this is the fastest inflation rate since the financial crash of 2008.
Interestingly, this upward pressure on prices does not appear to be worrying the US Federal Reserve . Central Banks around the world have responded to accelerating inflation over the past year by raising interest rates (China, the EU, India and Russia have all raised target interest rates). Meanwhile, the US Federal Reserve has maintained low interest rates and signaled that it will not follow suit, at least not in the near term.
Given the convergence of rising consumer and producer prices, high unemployment, low interest rates, and the impending election cycle, it’s unclear how the Fed Policy will shake-out and what the long-term affects will be on lower-middle market, privately-held businesses. From SDR’s perspective, it’s altogether possible that the 88.1% of respondents that said inflation was either here or on it’s way will be proved right, in one form or another. Based on the economic facts and Policy signals, we believe inflation is and will be a reality in the near-term and business owners not currently making strategic decisions with this in mind, will feel the sting.