Nearly half of the surveyed executives around the world expect the inflation rate in their countries to rise by at least one percentage point over the next year, while more than half say they won't be able to raise prices. The latest McKinsey Quarterly survey reflects the views of executives from 134 countries, across a full range of industries and from companies of all sizes.

Even though oil prices were declining while the survey was in the field, executives see energy costs, which rose sharply earlier this year, as by far the most significant driver of inflation. Rising real-estate costs took second place (Exhibit 1).

Inflation in the United States is currently 4.3 percent annually, while in the European Union it is 2.5 percent. Among the developed Asia-Pacific economies, Australia's inflation rate is 3 percent, while Japan is slightly deflationary, at -0.3 percent.

The survey respondents' outlook on inflation in developing economies is extremely diverse: a fifth of all executives in those markets expect inflation to fall, while nearly 13 percent—more than double the global average—believe the rate will rise by three or more percentage points....