By David Randall
NEW YORK- A growing chorus of US companies are raising concerns about the rising costs of everything from labor to components, yet stock investors appear unfazed by the prospects of higher inflation as the economy bounces back from the coronavirus pandemic.
Amid the economic rebound, companies ranging from Boston Beer Company Inc to toymaker Mattel Inc to appliance maker Whirlpool Corp have told investors that they expect the impact of higher costs on their businesses to be significant in the months ahead.
Overall, the number of companies which have mentioned inflation on their recent earnings calls is up compared with the year before for the first time since 2018, according to Bank of America Merrill Lynch.
At that time, investors were concerned about the impact of the Trump Administration’s trade tariffs with China, though consumer prices ultimately rose less than they did in the year before, according to the US Bureau of Labor Statistics.
“Short-term, I think it will be a struggle for many companies as they deal with the reopening,” said Saira Malik, chief investment officer for Nuveen’s global equity division. “As demand comes back faster than they expected its leading to logistical and supply chain issues. But it’s more of a fear than reality when it comes to being a long term issue.”
Equity investors do not appear overly nervous about the prospects of higher inflation ahead – with expectations it will be transitory rather than persistent and that companies will have the ability to pass price rises on.
Moderate inflation could benefit a broad range of equity sectors while only dampening valuations for high-growth stocks with low current earnings, according to AllianceBernstein.
Bond investors, meanwhile, would likely be more negatively affected by any persistent pickup in inflation that eats away at returns.
Overall, the broad S&P 500 is up nearly 11.5 percent year-to-date. Consumer prices rose 0.6 percent in March, the largest one-month rise in eight and a half years, while over the last 12 months, inflation is up 2.6 percent, the largest increase gain since August, 2018.
Federal Reserve Chairman Jerome Powell has said that he expects that inflation will exceed the central bank’s 2 percent target for several quarters before falling as the labor market and supply chains readjust to the economic recovery. – Reuters
