Rising prices for inputs ranging from chicken wings (bone-in) to steel mean that inflation is coming, if not already here.
But investors and policymakers alike have the same question: will those price increases be a temporary feature of the post-pandemic economy or the beginnings of persistent inflation? Earnings calls at publicly-traded companies point to the former; those that did raise prices told analysts that they do not expect inflationary pressures to be long-lasting.
As the economy inches toward a post-pandemic world, the cost of raw materials and other inputs are going up.
In the automotive and tech space, microchip shortages have led to price increases. Across industries, freight and warehousing have added costs to the logistics of delivering products.
Even chicken parts are getting pricier.
“I think we're anticipating an inflationary year, obviously, compared to 2020 as it relates to wings,” Wingstop (WING) CEO Charles Morrison said on an earnings call on Feb. 17.
In the face of a 27% year-over-year increase in bone-in wing prices, Wingstop came up with a creative inflation-hedging strategy: using different cuts of the chicken. The company is testing the use of bone-in thighs as an alternative to the pricier wings.
Another mitigation strategy: cutting costs.
At Clorox (CLX), an 8% increase in plastic material and resin prices has made it more expensive to make bleach bottles and other product packaging. Clorox CEO Linda Rendle told Yahoo Finance that the company has the brand power to raise prices, but said the company’s “very first” approach is to find cost-savings to keep prices where they are.
“We’ve been very clear in the height of the pandemic we did not want to take pricing and we stand by that decision,” Rendle said, although the company entertained the possibility of raising prices in some of its brands.
Other companies have swatted down even the thought of raising prices. Discount retailers like Five Below (FIVE) are relying on scale to ride out inflationary pressures. The idea: if you can’t cut costs and raise prices, just sell at higher volume.
The company is planning on opening between 170 and 180 new stores in the U.S. over the next nine months.
“The last thing we want to do is raise prices to the customer,” Five Below CEO Joel Anderson told analysts on Jan. 12. “And there's a lot of retailers: price goes up, their costs go up, the first place you move is to raising retail [prices]. That's honestly the last place we go.”
The macro picture
The Federal Reserve has opined on rising prices, offering the delicate message that inflationary pressures are on the way — but not to be feared.
“I think the jury's out on how much of this inflation pressure is going to be persistent,” Dallas Fed President Kaplan told Yahoo Finance on Feb 12.
The Fed has taken the stance that it can afford to tolerate inflation “moderately” above its 2% target, in large part because the central bank has had a history of falling short of that target
The central bank looks at a measure of aggregate inflation known as core personal consumption expenditures, which strips out more volatile components like food and energy. The most recent reading of core PCE, from December 2020, had year-over-year inflation at just 1.5%.
For the Fed, communication is key. If the central bank articulates its view that inflation will rise (but not run away), companies may shy away from medium- to longer-term price increases.
Corporate commentary on the temporary nature of inflation validates the Fed's efforts to keep inflation expectations anchored.
At Wingstop, Morrison told investors that the price pressure from wings are likely to be “transient."
Management at specialty truck-maker Oshkosh Corp. (OSK) similarly noted that the impact of higher steel prices, which could cost the company upwards of $10 million, may be temporary.
“We're not expecting it necessarily to stay elevated at the levels we're seeing right now,” CFO Michael Pack told analysts on Feb. 17.
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.