Contact: Kathy Pitman, Duke-Fuqua, (919) 660-8090 or Chris Allen, FEI, (973) 898-4658

CFO SURVEY: Inflation is back, fueled by increases in oil prices, wages, and health-care costs


Two-thirds of companies will beef up computer security;

1 in 3 expect to be in the M&A market

DURHAM, N.C., March 28 — A new poll of 304 companies predicts prices will increase by 3.5% during 2000. This prediction is up sharply from the 2.2% inflation predicted just three months ago, and even more dramatically from the 0.8% inflation predicted one year ago. These numbers are from the latest Financial Executives Institute/ Duke University Corporate Outlook Survey, conducted the week of March 13.

"One out of four firms says that the recent run-up in the price of oil will cause them to increase the prices of their products, with the average price increase for these firms being 6%," says John Graham, a finance professor at Duke University's Fuqua School of Business and the director of the survey. "The transportation and energy industries will be especially hard hit by the increase in the price of fuel, with CFOs in these industries expecting price increases of 9.5%."

Thirty-four percent of CFOs say that the run-up in oil prices will dampen earnings for their firm. In particular, 43.3% of manufacturing and 42.2% of mining/construction firms say that increased oil prices will hurt earnings.

Health-care costs, wages, and employment

Health-care costs are expected to continue accelerating in 2000, with a mean increase of 8.6%, further adding to inflationary pressures. Communications/media firms expect health-care costs to increase by 12.3%, and banking/finance firms expect them to increase by 9.6%.

Wages will also fuel inflation's fire. The CFOs expect wages to increase at a mean rate of 4.7% during 2000 in response to the tight labor market. Wage increases will be largest in the communications and media (8.1%) and high-tech (6.4%) industries. Sixty-four percent of firms would like to increase employment in 2000, with a 3% median increase in the number of employees. Last quarter 77% of companies said they would increase their number of employees, with a median increase of 5%.

Computer-hacking and security breaches

Thirteen percent of the CFOs say that their company experienced a computer security breach during the past two years. Thirty-six percent of communications/media and 30% of high-tech firms were affected by computer security breaches. Among those having experienced a security breach, 13% said the resulting damage was moderate, with the remaining firms saying the damage was minimal.

"Even among firms that did not recently experience a computer-security breach, concern about the risk remains high," notes FEI President and CEO Philip Livingston. "Overall, two-thirds of the CFOs surveyed said their firms are dedicating more resources in 2000 toward limiting computer-hacking and other security breaches."

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Earnings and Productivity

Even with the return of inflation, CFOs remain optimistic about the bottom line for their firms. Earnings growth is expected to average 20% during 2000 (median growth of 10%).

The continued growth in earnings is possible, at least in part, by continued strong growth in worker productivity. The median firm expects output per employee to increase by 3% in 2000. This is an decrease from the 4% productivity growth expected last quarter but it is still strong by historical standards. High-tech firms are leading the way. High-tech CFOs expect productivity to increase by 6.6% in 2000.

Capital Expenditures

Capital spending is expected to increase by 9.2% during 2000. This represents a rebound from the prediction made last quarter of a 7.6% increase in capital expenditures.

Mergers and Acquisitions

One-third of firms expect to be involved in mergers and acquisitions during 2000, up from the 25% that experienced M&A activity during the past year. M&As are especially prevalent among manufacturing firms, where 41% of firms expect to experience M&A activity during 2000.

Research and Development

R&D spending will continue at about the same pace during 2000. During the past quarter, 29% of firms increased their R&D spending over year-earlier levels. Thirty-two percent expect to increase R&D spending during the next 12 months.


About the Survey

The survey is conducted quarterly by FEI and Duke University’s Fuqua School of Business. Each survey polls a cross-section of CFOs from more than 4,000 U.S. companies. The current survey was conducted during the week of March 13, 2000. Complete survey results are available on the Internet at:

About FEI and Fuqua

Financial Executives Institute is the leading advocate for the views of corporate financial management. Its 14,000 members hold policy-making positions as chief financial officers, treasurers and controllers at 8,000 companies in the U.S. and Canada. For more information, visit

The Fuqua School of Business at Duke University was founded in 1970. Fuqua’s mission is to educate thoughtful business leaders worldwide and to promote the advancement of business management through research. For more information, visit