Planning for Inflation in a Volatile Economic Environment

Planning for Inflation in a Volatile Economic Environment
June 29, 2026 13 mins

Planning for Inflation in a Volatile Economic Environment

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Inflation is not only a cost challenge — it’s a leadership test as well. And it’s shaping how organizations allocate capital, price risk and position for growth.

Key Takeaways
  1. Business leaders are treating inflation as a structural issue, embedding flexibility, scenario-planning and capital discipline into how they operate and grow.
  2. Leading organizations are shifting toward more data-driven and dynamic strategies to protect margin and adapt in real time.
  3. Continuous adaptation — not reliance on forecasts — is enabling organizations to protect margin and capture growth.

Intro:
Hello and welcome to this, the latest episode of On Aon. And today we’re looking at the impacts of volatile and rising prices on businesses. Inflation is no longer just a short-term economic pressure — it is a test of resilience. In this episode of On Aon, Petra Schmidt and Derry Pickford explore how organisations can respond to shifting prices, supply chain disruption and market uncertainty with greater confidence.
Here’s Petra to kick off the conversation.

Petra Schmidt:
Hello, and welcome to this Global Insight episode of the On Aon podcast. My name is Petra Schmidt, and I'm Aon's global industry leader for the Enterprise Client Group. Today, we're looking at one of the defining forces shaping business decision making right now: inflation, and what it means for organizations planning ahead in an increasingly dynamic economic environment.

In the years since the COVID pandemic, supply chain disruption, shifting energy markets and changing policy responses have all contributed to a prolonged period of higher and more variable prices. Those pressures continue to evolve in response to ongoing geopolitical and market developments.

With me today to discuss the impact of the situation on companies and households and what organizations can do to plan for a world of ever-changing prices in this volatile economy is Derry Pickford, who is a partner and global head of investment strategy and economics for Aon. Great to have you with us, Derry.

Derry Pickford:
Thank you, Petra.

Petra Schmidt:
I think it's helpful to say that we're recording this on Monday, June 22nd, and so things may change between now and when this episode is released. Stepping back for a moment, Gary, what feels structurally different about this period of inflation compared to what we've seen in the past? And how is this showing up in the global economy today?

Derry Pickford:
I think it's worth noting that this inflationary shock, at least so far, has been a lot less severe than we saw back in 2022 when we saw the US CPI get up to 9%. And I think that's the nature of this shock so far being very short. I think the impact on the oil market has been less severe than people originally anticipated. And I think we probably haven't seen the full impact on kind of the petrochemical complex and the impacts on fertilizers and that's food prices down the road.

But because most of the impact has been on kind of gasoline prices, I think we've probably already seen the peak of the US CPI 4.2% in May. And although kind of UK inflation has actually been a lot lower, we only had 2.8% inflation, just the nature of the way that household energy prices get set means that we probably won't actually see the peak in UK inflation until November.

And there's also kind of base effects impacting that too. So it will be a temporary spike for the UK, and we anticipate it will come down in 2027. We think the worst is still to be seen there.

I think it's also probably worth saying that inflation over the course of 2027 in both the UK and the US will likely return towards those sort of high twos-type levels much more quickly than we saw after 2022 as well, where it remained very persistent.

I think one of the dangers that we are seeing at the moment is that we've had multiple kind of upside shocks to inflation over the last five years. And that we may start to see that kind of feeding through into inflation expectations. And that people were increasingly kind of bargained for higher wages and you can get that kind of a wage price type spirals and also firms will anticipate that inflation will remain relatively elevated as well.

Petra, maybe I can turn this over to you. What are our clients telling us about this current environment and what measures are they taking?

Petra Schmidt:
So I would say, Derry, in an inflationary environment, the risks of getting this wrong is fundamentally about margin erosion and loss of strategic control. Companies that rely on blunt annual pricing changes or fail to manage volatility across cost, supply chain, and financing can quickly see their profitability deteriorate or competitiveness weaken.

What our clients are consistently telling us is that uncertainty is now structural, as you said, rather than cyclical. Input costs, whether that is from the oil industry, labor costs, foreign exchange and demand are all moving simultaneously.

So traditional planning models have had to evolve. And in response, we're seeing a clear shift towards a more dynamic and yet disciplined approaches on pricing and commercial strategy.

Firms are moving to a more frequent target price adjustments supported by advanced analytics to optimize their product mix and protect margins, alongside tighter discount governance.

At the same time, there's a strong focus on cost control and supply chain resilience, renegotiating supplier terms, consolidation spend, redesigning networks through dual sourcing, near-shoring and more flexible logistics to reduce exposure to shocks. Operationally, where feasible, businesses are holding slightly higher inventories of critical inputs while improving demand forecasting and scenario planning to actively stress test margin outcomes under different inflation scenarios.

You may want to touch on, in fact, what's happening in the US and how they will be looking at inflation on a go forward basis with the new Fed chair.

And then financially, many are hedging strategies across commodities, foreign exchange, and interest rates to stabilize earnings and protect capital plans. And of course, no conversation would be complete without talking about the push on productivity, increased investment in AI, automation and digital tools.

So I would conclude by saying at a strategic level, companies are reshaping their portfolios and embedding indexation and escalation mechanisms into contracts so that they're not negotiating under pressure each time costs move.

And so we hear this term resilience over and over again. And so I would say we're really seeing more of a shift from reactive cost management to proactive data-driven resilience.

Derry Pickford:
You make a great point there about what the Fed is doing with its task forces. And out of the five task forces, two really touch on the inflation issue. One is that they're looking at inflation as a topic by itself, but also concerned about the quality of data sources, especially kind of official data sources, and whether they can speed up a process whereby they're getting real-time data as well.

So two of their five task forces are really focused around the inflation issue. And I suspect that we will see some changes maybe before the end of the year about how the Federal Reserve thinks about price stability.

Currently, they, of course, focus on the personal consumption expenditure deflator, and the target for that is implicitly 2%. It may be that they will start to look at maybe the CPI, which I think is more closely watched by Main Street and arise in terms of kind of data releases that much more quickly as well.

Interestingly, I think markets are have really, really priced kind of inflation expectations over the next few years. And when we say kind of inflation expectations, it sometimes hard to necessarily know whether this is the market, believing this is what inflation is going to be, or it's just the price that the markets are charging for that kind of inflation compensation.

We've seen two-year break-evens decline from nearly 3.4% back in March down all the way to 2.16% as of the time we were recording this. So a very big move downwards. And even on kind of the 10-year kind of expectations, which peaked back in May around the 2.5% level, they have come down by sort of 2.26%.

Now, we do think that maybe there's a degree of kind of complacency in those prices, and that there may be actually upside risk to those kind of levels.

We've had six years now of upside shocks to inflation and very little in the way of kind of deflationary shocks.

And I think it's fair to say that given the kind of geopolitical uncertainty that's increasing across the world, given some of the kind of issues that we have around kind of climate and likely going to impact food prices on an increasingly high frequency, that we should probably be recognizing that there will be many more upward shocks to inflation over time.

And that whilst we take a slightly asymmetric kind of attitude to how we deal with these inflation shocks and we allow inflation to surprise on the upside, but we really stimulate the economy when you get these kind of downside inflation shocks to the extent that they happen, then I think we could be looking at kind of inflation averaging, actually slightly above where inflation break evens for the US are at the moment.

Petra Schmidt:
It's interesting that you say that because I feel like from a client perspective, clients are now building that into their strategic plans while at the same time being a bit more data-driven and dynamic. We all know about airline tickets and hotel rooms and how those are based on demand and costs rather than longer-term price setting. I definitely see clients doing more of that, whether it's in things that we're all used to, like ride sharing via Uber and Lyft, increasing their fares during peak hours.

I'm not saying that every organization is going to be changing their prices on an hourly basis, certainly, or weather dependent, but absolutely data-driven is driving that.

I would say if you mentioned the food and beverage industry — we certainly see from a supply chain perspective. And I know the OECD came out with the supply chain resilience review last year. It's causing organizations to look at things like dual-sourcing, diversification of suppliers, more near-shoring, offshoring to be able to hedge those higher prices, particularly in industries that have razor-thin margins — food and beverage.

And then obviously driving more productivity from a tech perspective is actually an area where we look at AI being able to, if you look at just something like procurement and analyzing data that may have historically taken days, just down to minutes, that's the kind of, you know, structural productivity that will actually have net positive impacts on our clients to allow them to source better, drive better savings, and look at more resilient supply chains to help them deal with the kind of shocks of inflation.

Derry Pickford:
We've covered a lot over the last few minutes, but for you, Petra, what is the one takeaway listeners should take from our conversation?

Petra Schmidt:
Derry, I would really sum it up into one sentence, which is in an inflationary environment, resilience is not a project, it's a capability. So inflation and volatility are no longer short-term disruptions. Companies should design operations assuming uncertainty will continue.

Success is not about perfectly forecasting costs. It comes from continuously adapting. What we're seeing winning companies doing: you embed flexibility into your operation. You use data-driven decision making. You maintain pricing discipline while reconfiguring your sourcing strategies as conditions change.

And if you remember one thing, remember this. Don't just react to inflation. Use it as a catalyst to build lasting competitive advantage.

Derry, is there anything else you'd like to add in?

Derry Pickford:
I would echo everything you said completely. The only thing I'd add is that economists are fallible and if there's one thing that we can be sure on is that forecasts will be wrong. So I really think it's completely essential that companies take the measures that you suggested so that they are as resilient as possible when we get those inevitable surprises.

Petra Schmidt:
Thanks, Derry. That's great. That's our show for today. Thank you all for listening. If you'd like to find out more about how Aon can help companies move from risk to resilience and grow in a turbulent economy, or speak to one of our colleagues, head over to aon.com. In the next months, we'll have more episodes on global topics like upcoming legislation and the latest financial and economic news. Until next time.

Outro:
Thanks for tuning into the latest episode of On Aon. If you enjoyed this episode, don’t forget to like, share and subscribe wherever you get your podcasts and be sure to visit Aon.com to learn more about Aon.

We’ll be back next week with another episode — our Risk Capital Insight — when we’ll be talking about the exponential growth in digital infrastructure and how existing risk management approaches no longer apply.

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