Global companies turn to cost-cutting amid ongoing inflation

Operating costs have reached unprecedented levels, with 76 per cent of accountants reporting increases that surpass the previous peak recorded after Russia's invasion of Ukraine in 2022. The rise was even more pronounced among chief financial officers, where 83 per cent reported elevated expenses following a surge of over 20 percentage points from the prior quarter.

According to the report, the share of global accountants reporting higher operating expenses grew dramatically in the second quarter, reaching an unprecedented peak.

Researchers connected this growth to surging commodity and energy costs, in addition to supply chain bottlenecks arising from the conflict in the Middle East. 

Businesses in North America and Western Europe faced especially intense cost pressures, exacerbated by ongoing supply chain difficulties and increased tariffs.

As profit margins face growing strain, survey participants indicated that numerous organisations are shifting their focus toward cost reduction initiatives. Specifically, over 50 per cent of those surveyed in North America reported that their clients or companies were actively looking for methods to decrease expenses.

These insights demonstrated that controlling operational expenditures has emerged as a primary financial obstacle for companies operating within a highly volatile global market.

Moreover, inflation remained a major concern for finance professionals, with rising commodity prices and geopolitical uncertainty fuelling expectations of further price increases.

The survey found that 72 per cent of accountants and finance professionals expected inflation in their country to increase over the following three months. At the same time, 42 per cent expected interest rates to rise, reflecting growing expectations that central banks would continue tightening monetary policy.

The report noted that higher energy prices following the outbreak of conflict in the Middle East had materially increased headline inflation across many economies.

Those inflationary pressures had already prompted policy responses, including an interest rate increase by the European Central Bank and a more hawkish outlook from the US Federal Reserve.

Researchers warned that developments in the Middle East would remain a key determinant of future inflation trends.

The report indicated that central banks could see inflation risks mitigated if the conflict progresses toward a resolution and oil prices stabilise near pre-war levels. 

However, the report cautioned that renewed conflict and another spike in energy prices could force central banks into more aggressive policy action.        

For businesses, persistent inflation was expected to remain a key challenge, increasing borrowing costs while adding further pressure to already elevated operating expenses.