Americans are feeling the impact of rising prices, and the companies leveraging price increases appear to be at odds over how long the inflationary pressures will last.
The Bureau of Labor Statistics reported on Nov. 10 that prices in October soared 6.2% year-over-year, the fastest annual rise in the Consumer Price Index since 1990.
Some of those inflationary pressures are coming from higher prices of oil, but the breadth of price increases across different types of expenditure categories suggests other factors at play.
Those at the Federal Reserve, the nation’s central bank, have used the word “transitory” to describe the dynamics at play. Those policymakers have blamed higher prices on supply issues linked to bottlenecks like limited microchip production and constrained ports.
In company earnings calls over the last few weeks, some executives sympathized with the view that this too shall pass (Team Transitory). But at other companies, concern is building that the supply chain may have dramatically transformed their businesses for good (Team Permanent).
Either way, the view inside these offices (that have the power to decide the price tags of their goods and services) is one riddled with uncertainty.
“The t-word, I guess it shows people have different definitions of ‘transitory,’” Whirlpool (WHR) CEO Marc Bitzer told Yahoo Finance on Oct. 22. “I’m not quite sure how long you would define transitory these days.”
Sharpies and Rubbermaid
Newell Brands (NWL) CEO Ravi Saligram told Yahoo Finance on Nov. 2 that the company, which manages the markers and storage brands among others, has different ordering systems that have created a multitude of “hassles” amid the supply chain issues. CFO Christopher Peterson told analysts on Oct. 29 that it expects those pressures to last for a while, although it is projecting “significant margin growth” next year.
“As we think about the planning for next year, we are not assuming that inflation is going to be transitory. We are assuming that inflation is going to be significantly above normal next year.”
Corning glass and ceramics
Corning Incorporated (GLW) said that if you had asked its executives earlier in the year, they would have agreed that price pressures would end up being transitory.
But that tone is starting to change, CEO Wendell Weeks told analysts on Oct. 26.
“Actually, it is mainly through conversations with our supply chain head as well as our investors that have led us to look at this and say, this may last longer than we had thought. And that this looks like we could continue to have challenged supply chains for the foreseeable future.”
The company said it is starting to “externalize” that cost pressure through price increases.
Snowmobiles and ATVs
Polaris (PII) guided down on its adjusted gross profit margins, citing an “escalating increase in input costs.” CFO Robert Mack warned investors on Oct. 26 that it would have to resort to “quickly adjusting” its pricing for the model year 2022.
“Just in the third quarter alone, our input costs from logistics, ocean and truck rates, commodities, labor rates and plant inefficiencies increased over $100 million, or approximately 580 basis points, when compared to the prior year third quarter.”
Boot Barn Holdings (BOOT) CEO James Conroy said on Oct. 27 that the pent-up demand for boots at the retail chain seen earlier in the year is showing no signs of slowing.
“Candidly, now after 32 consecutive weeks of this business, it’s hard to say that it’s transitory. And the growth has been so broad-based that — it’s kind of exhilarating to be honest,” Conroy said.
Starbucks (SBUX) executives said on Oct. 28 that rising commodity prices for coffee impacted the business in the quarter, warning that it was unsure when those inflationary pressures would subside. The surge in customer demand is likely one factor behind CEO Kevin Johnson’s belief that the company has the room to raise prices “if we need it.” But Johnson warned that demand is a bit hard to track with customer behavior primarily driven by trends in COVID-19 itself.
“As I think consumers start to see the Delta variance, the curve starting to slow, consumer mobility unfolds. So these are all transitory and they’re unpredictable. It’s all related to the pandemic.”
The large banks have a strong pulse on the macroeconomic picture of the U.S. economy. Citigroup (C) CEO Jane Fraser told Yahoo Finance that although the transitory story is facing its own stress test, she feels the economy will be able to weather through the uncertainty.
“We’ve stopped hearing people say transitory, because it’s feeling a tad longer than that. However if you look at the causes of it, they are ones the world economy will work through… the question is, therefore, does this become something more sustained. We won’t know until next year. I don’t think it will become a big issue
but it’s certainly something that’s going to be choppy for the next while.
Fake meat burgers
Beyond Meat (BYND) reported on Nov. 10 that it saw weaker performance in its U.S. retail offerings. But the company described the macroeconomic picture as volatile, pointing to the fact that it had reported record net revenues in the quarter prior.
“My comments are our best understanding of an environment that is characterized by rapidly changing and we believe, largely transitory dynamics,” Beyond Meat founder and CEO Ethan Brown said.
The company pointed to labor shortages impacting restaurants serving its imitation meat products. But Brown’s comments suggest that the company doesn’t see limited operating hours and menus at those restaurants lasting forever.
Real meat burgers
Red Robin (RRGB) increased its prices at an effective rate of 3.6% for the full year, citing “staffing challenges” that incurred $3.1 million in costs associated with hiring, training, and one-time bonuses and overtime pay. Company management said on Nov. 10 it expects those labor costs to be “transitory,” adding that the churn for workers (which tends to bid up wage costs) already appears to be slowing in its restaurants.
“We’ve seen that turnover has actually begun to slow down also as we came out of the third quarter into the fourth quarter. So that’s obviously helping our staffing efforts also,” said CEO Paul Murphy.
Chipotle (CMG) had already increased menu prices so it could pay higher wages and cover higher commodity costs. CFO John Hartung said there is still “upward pressure” on the company, which could spur more cost increases. But for right now, the company wants to see how things play out.
“It’s just a matter of let’s be patient,” Hartung said on Oct. 21. “Let’s wait and see what holds and what is transitory, and we’ll make the right moves at the right time, but we’ll be patient about it.”
Hilton (HLT) CEO Christopher Nassetta said that whether or not inflation sticks around, the fact that consumers are seeing and expecting price increases means it has the ability to be more flexible on its hotel fares. For companies looking to increase margin, that’s a good thing.
“Obviously, we’re in a more inflationary environment broadly,” Nassetta said on Oct. 27. “Thank you, Federal Reserve and the U.S. Congress, for fiscal and monetary stimulus. We could debate transitory or otherwise, but those things are translating into, broadly, a more highly inflationary environment. And that applies to us, too, and that obviously is helping from a pricing power point of view.”
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.