For the leaders of America Inc, high inflation is unwelcome. It is also unfamiliar
leaders of America Inc, high inflation is unwelcome. It is also unfamiliar. Warren Buffett, 91, the oldest boss in the500 index of big firms, last warned about the dangers of rising prices in his annual shareholder letter for 2011. The average chief executive of a company in the index, aged a mere 58, had not started university in 1979 when Paul Volcker, inflation’s enemy-in-chief, became chairman of the Federal Reserve.
The primary task for any management team is to defend margins and cashflow, which investors favour over revenue growth when things get dicey. That will require fighting harder down in the trenches of the income statement. Although a rise in margins as inflation first picked up last year led politicians to denounce corporate “greedflation”, after-tax profits in fact tend to come down as a share ofwhen price rises persist, based on the experience of all American firms since 1950 .
The input bosses can control most easily is labour. After months of frenzied hiring, companies are looking to protect margins by getting more from their workers—or getting the same amount from fewer of them. The labour market remains drum-tight: in America wages are up by more than 5% year on year and in April layoffs hit a record low. But, in some corners, the pandemic hiring binge to meet pent-up demand is being unwound.
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