Corporates must apply care to managing inflationary impact
The uncertainty the global economy faces and the impact from a corporate IR perspective was set out by John Dawson, director and head of investor relations at Rolls-Royce, at the IR Magazine Conference – UK & Ireland last week.
‘In the global context I think there is uncertainty,’ Dawson said, listing several measures his organization analyzes: air passenger activity, demand for new planes, new investment going into Asia, how the middle class is spending in the Asia region and how this is changing ‒ all factors in long-term investment that affect Rolls-Royce.
Dawson also warned of the impact of rising inflation within the macroeconomic environment. ‘The macro environment is slightly weaker than it has been over the last few years,’ he pointed out.
‘Many investment commentaries are about inflation and the factors that can stoke [it]: whether it is led by the weakening currency, therefore inflation on imported goods, whether it is an improvement in oil prices because of OPEC’s decision to start controlling production, albeit in a year or two – that has already had an inflationary impact on oil and gas prices, and as a result there is an element of inflation creeping in.
‘We have put a lot more liquidity into the economy to make up for the shortfalls of 2008 and, in the long run, it has to have an effect on inflation or a bounce back from deflation.’
Dawson noted that other issues involve inflation and interest rates. ‘While there is currently a disconnect between inflation and interest rates, there should be a stronger link between interest rates controlling growth, the economy and managing foreign exchange,’ he said. ‘That is something we are looking at with interest. It is not an environment [where] we would feel comfortable going out and offering big pay increases to offset inflation – and that will eventually have an impact on growth.
‘So it could be an interesting few years. From a corporate point of view, we need to manage it with certainty and a degree of care.’
