Fears of inflation plague firms

PUBLISHED : Tuesday, 10 May, 2011, 12:00am
UPDATED : Tuesday, 10 May, 2011, 12:00am


Previously, we have written about inflation and its effect on retail investors and the common people.

A survey by a global accounting body, shedding light on how inflation is affecting business, suggests that the regional recovery will be stunted if it is not curtailed. The Global Economic Conditions Survey of finance professionals, by the Association of Chartered Certified Accountants (ACCA), shows escalating global inflation is the biggest challenge to businesses struggling to recover from the downturn.

The survey of more than 2,300 accounting professionals in March, the largest by the association, showed that for the first time 51 per cent reported problems with rising operating costs, making this the most commonly cited business challenge.

Only 31 per cent reported rising costs as being a problem when the question was put in the fourth quarter of last year. These costs made it more difficult for accounting professionals to spot opportunities for growth and cost-cutting for the businesses they advise.

Although the survey showed the worst problems were reported in Malaysia and Singapore, this trend was not confined to the faster-growing emerging markets, but was reported with only marginally less intensity in the more sluggish developed economies.

'The huge rise in inflation has been the most worrying development to emerge in our latest survey,' said report author Manos Schizas, ACCA's senior policy adviser.

'More than half the respondents reported problems with rising operating costs, which will hinder their ability to look for opportunities at a time when businesses desperately need to fill their order books.

'The number of finance professionals worried about inflation will also be of concern to governments that have a range of measures in place to control rising prices.

'These measures were designed to ensure that businesses do not fail because they cannot afford the raw materials or expertise.'

The survey showed that confidence rose faster on the mainland and fell fastest in Malaysia.

The Asia-Pacific's front-row seats to the recovery are once again proving uncomfortable. Although about 42 per cent of respondents in the region believe things are getting better, this is the lowest percentage in a year, and down sharply from three months earlier.

Small financials and small businesses appear to have been particularly hard hit, while large financials and corporates are only barely in positive territory, the survey showed.