Kavan Choksi on the Effect of Inflation and Reinflation

Kavan Choksi: When Inflation and Reinflation Happen

The financial outlook of companies in the United States has been a topic of concern since the third quarter of 2022. Recent reports show that corporate earnings and growth have been steadily declining, much to the dismay of business owners and stakeholders. Kavan Choksi, a freelance business consultant, states that this trend has continued into the first quarter of 2023. With the economy in flux, many companies will likely turn to outside experts like Kavan Choksi for guidance on weathering the storm. It will be interesting to see what steps businesses take in response to these changes and how they adapt to the new normal.

He also mentions that core inflation and continued rake hikes will likely fuel an oncoming, mild recession. During this time, investors need to parse out how well companies maintain margins, control costs, and manage prices, control costs in this challenging market. On the other hand, companies will need to look for more growth opportunities since borrowing is unappealing in this downturn market.

Kavan Choksi explains that central banks are in a balancing act involving rate hikes. It is quite a challenge for the banks. A rate raise's real and perceived messages have huge and far-reaching economic consequences. Certain stances can plunge the economy further into a deep recession, perhaps even more than required. On the other hand, a stance that is too soft will allow inflation to fester. It creates a long-term economic drag or potential reignition involving higher inflation rates. When these rate decisions are made, the economy adjusts for better or worse. In this case, worse, as it makes decisions more difficult later in the rate hiking cycle.

Kavan Choksi explains that central banks have shown a slowing in rate increases. Inflation is expected to ease as the rate hikes keep growth to a minimum. However, reinflation remains a risk. Supply chains, especially for oil, have stayed volatile. Demand isn't guaranteed to respond to higher rates, Kavan Choksi says, particularly since the world is still recovering from the worst of the pandemic. The job market remains resilient as it creates wage inflation risks – which is a surprise.

Kavan Choksi is a freelance business management consultant. Read about his take on various issues on business, finance, economics, and politics on this page.