A former top corporate executive warned that the economy doesn’t appear to be on a fast path to recovery due to higher-than-anticipated inflation and recent mass layoffs.
The Consumer Price Index (CPI) increased 0.3 percent last month after gaining 0.2 percent in December, the Labor Department’s Bureau of Labor Statistics revealed. Shelter, which includes rents, accounted for more than two-thirds of the rise in the CPI. On a year-by-year basis, the rate increased 3.1 percent.
“We’ve seen companies where we’ve had $2 million of interest rates now explode to $12, $13, $14 million. And the free cash flow that we generate is going to pay the man,” former Home Depot and Chrysler CEO Bob Nardelli told Fox Business on Tuesday. “We cannot afford the type of interest rates that we’re buried [in] today. I mean, you couldn’t afford it as an individual in trying to balance your budget.”
The American public, he added, doesn’t fully understand how high interest rates “are killing” lower- and middle-market companies.
The report Tuesday is less than the 3.4 percent CPI figure in December and far below the 9.1 percent inflation peak in mid-2022. But the latest reading is still well above the Federal Reserve’s self-imposed 2 percent target level at a time when public frustration with inflation has become a pivotal issue in President Joe Biden’s bid for reelection.
Aside from inflation, Mr. Nardelli warned that layoffs are also mounting. There has been a “tremendous shift in employment out there where people are being laid off.”
“The general population will not be duped by this aversion to try and blame inflation on corporate America. It starts at the raw materials, it starts at transportation, it starts at energy,” the former CEO said. “A whole host of things that are driving this up, wage increases.”
“This is all about, I think, trying to buy votes. This is all about an administration that is out of control,” Mr. Nardelli also said in the interview. “We have a strong bias towards spending versus having a conservative policy or a sustainable future.”
Cisco, the network giant, will reportedly slash thousands of jobs as it plans to restructure its business. So far in 2024, tech companies have laid off more than 34,000 employees, according to a report.
Weeks before that, Microsoft laid off about 1,900 Activision Blizzard and Xbox employees to align with “a sustainable cost structure that will support the whole of our growing business,” it said.
Aside from tech companies, other sectors are reportedly being impacted. Paramount Global, the owner of broadcast and cable TV channels, said it would lay off about 800 workers in a bid to reduce costs.
Late last month, delivery company UPS said it would slash 12,000 jobs after reporting a decline in the volume of packages being shipped. The company’s CEO said the job cuts will help the firm about $1 billion.
On Tuesday, Biden administration officials responded to the CPI by noting that average hourly pay, adjusted for inflation, rose in January and is 1.4 percent higher than it was a year earlier. But the average work week has declined because some businesses have reduced their employees’ hours, leaving weekly inflation-adjusted pay slightly lower than it was a year earlier.
“We understand there’s more work to be done, but this is an economy that is in a much different place than it was a year ago,” said Karine Jean-Pierre, the White House press secretary. “When you see eggs and milk and products like that at the grocery store going down, they’re lower than they were a year ago, that’s important.”
The Federal Reserve raised its key rate 11 times between March 2022 and July 2023, in a concerted drive to defeat high inflation. The result has been much higher borrowing rates for businesses and consumers, including for mortgages and auto loans. Rate cuts would eventually lead to lower borrowing costs for many categories of loans.
