U.S. companies worried about rising inflation costs

4 minutes
U.S. companies worried about rising inflation costs

NEW YORK - A growing chorus of US companies raise concerns about the rising costs of everything from labor to components yet stock investors seem unfazed by the prospects for higher inflation as economy bounces back from the coronavirus pandemic.

Among the economic rebound, companies from Whirlpool Corp toymaker Boston Beer Company Inc to appliance maker Mattel Inc have told investors that they expect the impact of higher costs on their business in the months to come.

According to Bank of America Merrill Lynch, the number of companies which have mentioned inflation on their earlier earnings calls is up by nearly a year compared with the year before in 2018 for the first time since 2018.

At the time, investors were concerned https://www.reuters.com article - enhanced-fed-beigebook tariff effect - broaden-across - U-s-rate-growth - higher-fed-idUSKBN 1 O 42 HP about the impact of the Trump Administration's trade tariffs with China, though consumer prices eventually rose less than they did in the year before, according to the U.S. Bureau of Labor StatisticsU.S. Bureau of Labor Statistics.

What was a struggle for many companies with the reopening of the company, said Saira Malik, Chief Investment Officer for Nuveen's Global Equity division.As demand comes back fast than expected its led to logistical and supply chain issues.But it's more of a fear than Reality when it comes to long term issues.

Equity investors should not appear overly nervous about the prospects of higher inflation ahead - with expectations it will be permanent rather than transitory and that companies will have the ability to pass price rises on.

According to AllianceBernstein, moderate inflation could benefit a wide range of equity sectors while only dampening valuations for large stock-growth stocks with low current earnings.Bond investors, meanwhile, will likely be more negatively affected by any persistent inflation pickup that eats away at returns.

Overall, the broad S&P 500 is up nearly 11.5% year-to date.The consumer prices rose 0.6% in March, the largest one-month increase in eight and a half years of growth, while inflation is 2.6% on the last 12 months, the biggest increase gain since August, 2018.

Jerome Powell has said https: www.reuters. com article us-usa - fed-expectations-analysis - for inflation-psych expected-priorities-rise idUSKBN 2 BE 16 B that he expects inflation to exceed the central bank's 2% target for several quarters before falling as labor markets and supply chains readjust to the economic recovery.

So far, the increase in inflation in the last six months does not seem to be hurting margins of company.According to data from S&P Dow Jones Indices, a total profit margin of 12.03% is expected during the first quarter, the highest of any one since at least 2006, according to the S&P 500's results.

As long as the higher input costs are moderate and not excessive, it's not necessarily bad.Coming back from where we were last year to normalizing demand it shows a healthier economy and stabilizing demand, said Frank Rybinski, chief macro strategist at Aegon Asset Management.

You are noticing considerable beats.With an early cycle, you really get operating leverage kicking in.

In a report by S&P Global Ratings, David Tesher, head of North America Credit Research, wrote that the tightening of cost pressures is likely to reduce near-term profits in many sectors.Profit erosion would obviously be large and hit a relatively moderate percentage of companies.

Other investors are more worried about the impact of inflation on assets overall.

This is part of the danger of policy that has been allowed to go significantly ward off course.It forces businesses to make poor decisions based on the short-term imbalances created by poorly policy on the part of the Federal Reserve, said Mike O'Rourke, chief market strategist at Jones Trading.

Jeffrey Gundlach, chief executive and chief investment officer at the Los Angeles-based DoubleLine Capital, told Bloomberg Tuesday that it is not clear that inflation pressures will be as short-term as the Fed expects.

According to Bloomberg, 'I'm not sure why they think they know that it is transitory.How can you know whether there is money printing going on?

But factors ranging from continuing demographics to the continued improvement of productivity through technology should keep longer-term inflation and wages in check at some time though, said Jim Paulsen, chief investment strategyat at the Leuthold Group.

Certainly, current economic strategies are uncontrolled, but so is strength in the U.S. labor force, he said.

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