More than a year after concerns about skyrocketing oil prices and Hurricane Katrina raised fears about inflation, 40 percent of executives around the world still anticipate that the rate of inflation in their countries will rise by at least one percentage point over the next year, according to the latest McKinsey global survey.1 Executives continue to see energy prices and real estate as the primary drivers of higher inflation, but strong demand for goods and services has become an increasing concern.
Overall, half of executives around the world expect inflation to increase in their countries over the next year. Respondents’ perceptions of how high inflation will go, as well as the factors driving it and whether they will be able to raise prices in response, vary widely by region, however.
Globally, perceptions about inflation have eased a bit since our survey in November 2005, when nearly half of our sample believed that it would rise by at least one percentage point in the ensuing year. But expectations vary widely within the developing world (Exhibit 1) and are particularly strong in China, where 19 percent of respondents—nearly three times the global average—believe inflation in their country will increase by at...