Inflation is the main preoccupation of CEOs, a survey has found, as local businesses face spiralling costs “with no end in sight”.

The vast majority of business leaders – 80 per cent – expected to raise the prices of their products and services in the year ahead to offset their costs, according to the Q2 Vistage CEO Confidence Index 2022.

It showed the number of businesses that would be increasing prices had doubled since the end of 2021.

The report showed higher costs for raw materials and inputs were reported by 65 per cent of the respondents while 78 per cent reported increased prices from vendors.

Carried out in collaboration with The Malta Chamber, it represented a comparison of data from 65 respondents from the local business community, taken between February and April.

Overall economic conditions in Malta have remained the same for most, with expectations being that things will get worse in the coming months.

“Respondents seem divided about the future of the Malta economy, with 32 per cent believing conditions will improve and,  on the other end of the spectrum, 40 per cent believing it will worsen,” the Vistage research team said.

“After a dramatic fall in Q4 2021, optimism among Malta businesses rose in Q2 2022,” they said, explaining it was driven by improving prospects for the future and investments to support these.

While investment was likely to increase for most firms, so would the number of employees, the report showed.

Most businesses surveyed said sales revenues would increase or remain the same in the coming months but they also anticipated that profitability would remain the same or worsen.

Malta Chamber president Marisa XuerebMalta Chamber president Marisa Xuereb

“It does not come as a surprise that 80 per cent of businesses expect prices for their product or service to increase during the current year,” said Malta Chamber president Marisa Xuereb in her analysis of the findings. But only one in four expected their profitability to improve and more than a third believed it would worsen, she highlighted, adding this was an indication that businesses realised they may not be able to pass on cost increases fully and may need to absorb part of them.

It will become a “real challenge” if costs continue spiralling the way they are, Xuereb warned.

She pointed out that all cost increases – particularly on raw materials and supplies, transport and labour – were being fuelled by supply chain shortages and bottlenecks as well as the skyrocketing prices of fuel and energy, adding that “there is no end in sight to this”.

Xuereb quoted the fact that 60 per cent of CEOs expected a worsening supply chain going forward.

Increased transportation costs were a cause for concern for 75 per cent of respondents while 55 per cent reported transportation issues to be a challenge for their business, the data showed.

Increased labour costs were reported by 61 per cent of the business leaders and the trend of greater wages and compensation was likely to continue, Xuereb continued.

More than half of the CEOs expected their firm’s total number of employees to increase in an “extremely tight labour market, which is found to fuel further wage inflation beyond cost-of-living adjustment”, the president noted.

Over 50 per cent of respondents have already boosted wages in response to finding it more difficult to hire employees, the report showed.

“Against this backdrop, it is particularly pertinent that every possible policy effort is put into mitigating inflationary pressures on businesses,” Xuereb urged.

The fact that energy costs have so far been fully subsidised has helped mitigate inflationary pressures and, for as long as this can be financed, she acknowledged it is of great help to business.

Against this backdrop, it is particularly pertinent that every possible policy effort is put into mitigating inflationary pressures on businesses- Malta Chamber president Marisa Xuereb

The scale of inflationary pressures that exporting companies, particularly those in manufacturing, were being exposed to was even more pronounced than what was being reflected in local consumer inflation, Xuereb observed.

This was because exporters were facing inflated transport costs both on importation and when they exported.

They also had much less flexibility as regards using alternative materials that were more readily available, especially when servicing large international industrial partners that have rigorous qualification standards, Xuereb highlighted.

“Businesses servicing the local market must constantly balance cost increases with the purchasing power of their customers, while struggling with human resource shortages.

“These are compounded by bureaucratic difficulties with the recruitment of third-country nationals, COVID-related absenteeism and leakage of employees from the private into the public sector and private contractors of the public sector.

“Perhaps, a deeper look into your purpose and a refocus on your long-term goals is a good way to keep your team motivated as you ride the storm,” Xuereb advised.

Vistage Malta managing director Nathan Farrugia said leaders needed to focus on their core competencies and continue to deliver value to their customers in efficient and effective ways.

Efficiency was key as costs rose, he advised, cautioning against “simply putting your own prices up”, which could “feed a vicious cycle”.

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