Dive Brief:
- CFO optimism edged lower in the second quarter as energy price shocks pushed inflation back to the top of finance chiefs’ concerns, according to the latest quarterly CFO survey from Duke University’s Fuqua School of Business and the Federal Reserve Banks of Richmond and Atlanta.
- The survey found that CFOs’ outlook on the overall U.S. economy declined to 60.6, down from 61.7 in the first quarter, according to a report released Wednesday. The measure uses a 0-to-100 scale, with 100 representing maximum optimism. Inflation’s return as the top concern for CFOs marked a shift from the first quarter, when tariffs and trade policy ranked as the leading source of business anxiety. Non-labor costs ranked second in the latest survey, while geopolitical risk emerged as a top concern for the first time.
- Roughly two-thirds of respondents indicated that elevated energy prices have driven their firm’s unit costs higher — but only about one-third of firms have raised the prices they charge. “This indicates that many companies have not yet passed through higher energy prices to customers,” according to a press release on the findings.
Dive Insight:
The CFO survey, which included 530 respondents, was fielded from May 18 to June 5 against a backdrop of heightened geopolitical tensions in the Middle East after the U.S. and Israel launched air strikes on Iran in late February.
Consumer prices jumped 4.2% in May — the highest level in three years — as a near-total blockade of oil shipments through the Strait of Hormuz pushed up energy prices, according to Bureau of Labor Statistics data.
The price of Brent oil futures fell below $75 per barrel on Wednesday for the first time since the war began, following a preliminary agreement between the U.S. and Iran to end the conflict and reopen the Strait of Hormuz.
In a Sunday interview with ABC News, Energy Secretary Chris Wright said oil traffic through the strait was “already back to normal.” He predicted continued stabilization regardless of how further U.S.-Iran negotiations play out.
The Duke-Fed survey asked CFOs how their firms would react under a scenario in which oil prices averaged $120/barrel through the end of the year. Under this scenario, companies would pass through substantially more to their customers: Average expectations for unit cost and price growth would grow sharply, increasing to 7.3 percent and 6.7 percent, respectively.
“One striking feature of the current situation is that while firms that are impacted by higher oil prices have only passed through a portion of the increased costs in the form of higher prices, should oil prices rise further and remain elevated, that pass-through increases to roughly 90 percent,” Atlanta Fed economist Brent Meyer said in the Wednesday release.
“This suggests that in an environment of sustained higher cost pressures, firms may be unwilling or unable to absorb any more costs,” Meyer said.
