Consumers, not businesses, bear the brunt of inflation: report

WASHINGTON — Widespread commodity shortages are driving up production costs for many consumer brands, from Coca-Cola to Hershey’s chocolate to Colgate. However, companies are seeing so far inflation as a godsend for their profits, as they may pass higher costs on to consumers without facing competitive pressure.

More S&P 500 companies are commenting on inflation than usual on their earnings conference calls, according to FactSet, a financial data provider.

While executives have raised concerns about soaring commodity costs, a closer look at companies in the consumer goods sector has shown that the majority have not lowered their profit forecasts. for this year, because they have found ways to reduce inflation.

“At least for companies in the consumer staples sector, it doesn’t appear that higher inflation is having a negative impact on annual profits and net profit margins right now,” wrote John Butters, senior analyst at profits at FactSet, in a report.

“In total, 18 of the 26 companies in this sector say they have already increased prices or were willing to raise prices to help offset inflation.

FactSet examined hundreds of earnings calls for the first quarter, running from March 15 to June 15, and found that 197 S&P 500 companies mentioned inflation, the highest number since 2010. And as of Sector level, the consumer staples (84%) and materials sectors (75 percent) had the highest percentage of companies that cited inflation.

Overall, the estimated profit growth rate and profit margin for the entire S&P 500 are higher today compared to March estimates, indicating that companies are making up for higher costs with higher prices. . For consumer staples, the estimated profit growth rate for 2021 fell from 5.2% in March to 7.2%.

Major food and beverage companies including Kraft-Heinz, Coca-Cola, Hershey, poultry producer Tyson Foods and packaged food company ConAgra Brands have benefited from recent price increases.

“All I can tell you is that I am satisfied with our ability to pass cost inflation on,” Carlos Abrams-Rivera, US zone president at Kraft Heinz Co., told analysts at the meeting. an earnings conference call on April 29.

The current environment allows companies to push prices higher, according to David Marberger, CFO of ConAgra Brands, Inc. He said the rate of inflation will continue to accelerate in the coming quarters.

“History shows us that price adjustments are more likely to be accepted in the market when industry-wide and large-scale input cost inflation occurs, and that is the environment that we see today, ”Marberger told analysts.

Coca-Cola CFO John Murphy expressed a similar sentiment during an April 19 earnings call.

“I think it’s important to point out that as a general principle around the world, we generally seek to bring prices in line with inflation,” he said. “I would expect this principle to continue to be upheld as we move into the second half of 2021 and even then into 2022.”

Multinational consumer products companies such as Colgate-Palmolive and Procter & Gamble have also responded to rising costs by raising prices and have not come under competitive pressure as a result.

“We have to be brave and bold in this regard,” Noel Wallace, CEO of Colgate-Palmolive Co., told analysts on April 30. increases will continue to be an important element.

Companies are also using other methods to manage inflation, including productivity improvements and cost savings.

This year, the global chip shortage has slowed down some auto factories and delayed shipments of new vehicles. As a result, the prices of new and used cars in the United States have skyrocketed.

Global chip shortage is now pushing up prices for laptops and printers, says the Wall Street newspaper report. HP, for example, increased the price of its computers by 8% and that of its printers by more than 20% in one year due to component shortages.

The Federal Reserve made a significant revision to its short-term inflation forecast on June 16, reflecting the sharp price increases. The central bank, however, has maintained its basic view that the recent rise in inflation will prove to be “transitory”.

However, there is now “a much greater sense of uncertainty and humility around this point of view,” according to Matthew Luzzetti, chief US economist at Deutsche Bank.

It was clear that Fed officials were “more concerned than at the last meeting, no doubt due to recent surprises on the rise in inflation and the sharp increase in some measures of inflation expectations.” Luzzetti wrote in a recent report.

Stanford University’s Hoover Institution economists John Cochrane and Kevin Hassett warned the Fed could repeat the mistakes of the 1970s when the country struggled with double-digit inflation.

“Inflation has been so low for so long that most Americans naturally see persistent inflation as old story, and any skirmishes today will be quickly reversed,” Cochrane and Hassett, who was also a former economic adviser to the Trump administration, written in a blog.

“Yet the belief that our government will take swift action to reverse inflation seems increasingly unfounded.”


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