Businesses are facing higher gasoline and heating bills, just like consumers, in addition to higher expenses for labor and raw materials. But unlike many middle- and lower-income Americans, they’ve been making more than enough extra income to cover the additional costs.
Big companies have successfully raised prices for their products, from cups of coffee to auto parts to cans of paint, because their customers have kept lining up regardless. The result: record profits at the end of 2021 as revenue rose and a good chunk of each
“A lot of the price pressures are just getting passed along” from companies to their customers, said
What's uncertain is how much longer the trend may last, before customers sharply cut back on their purchases. A
The last such round of conference calls for CEOs was a rousing success for the companies. With customers itching to spend, and many sitting on savings built up with help from
“The overwhelming message from most companies in this earnings season is still that demand remains strong and continues to exceed their ability to meet it,” Deutsche Bank Chief Strategist
The coffee giant
Those past price bumps didn't discourage
He made the comments after
Companies aren’t able to blindly raise prices across the board. At
“We were there for our customers through the pandemic,” he said in a call with analysts. “We were there for them when maybe others were not through the supply-chain crisis. And so that, all things being equal, should position us well to be able to ask nicely of our customers that they should share in that.”
Earnings across S&P 500 companies jumped a little more than 30% in the latest quarter. Margins, which show how much profit companies make off every
In the last three months of 2021, companies in the S&P 500 held onto
For the first three months of 2022, analysts expect a further dip to
The story for many
The typical working household making
And the pressure may crank even higher after
“The consumer has been able to accept higher prices, so far,” said
The war's exact effect on inflation is unclear. Oil prices have been nearly as quick to plunge as to surge recently, for example, given all the uncertainties.
Economists aren’t surprised corporate profit margins have remained so high, which they say is a result of the economy roaring out of its coronavirus-caused shutdown. Buyers are increasing their purchases faster than businesses can increase the amount of stuff on shelves to sell.
“There’s so much capital out there, it’s so easy to get and almost free” with interest rates near record lows, said
Now the
The hope among economists is that capitalism will also do what it does, and the high profit margins signal to companies they should ramp up production to maximize their sales. New competitors should also be attracted after seeing the big profits available. All that should lead to slowdowns in price increases and a steady erosion of margins.
That’s the optimistic scenario in the eyes of Arnon at the Penn Wharton Budget Model. But he acknowledges worse-case scenarios that could lead corporate profit margins and inflation to stay high. They chiefly center around an economy that's no longer well-functioning or competitive.
“If two years from now, we’re talking about margins going up from here,” he said, “that would be the clearest signal.”
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