#Inflation: Which Companies are Raising Prices, and How Much You’re Willing to Pay
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Yeah, I know it’s been a crappy month for the stock market.
But let’s talk about you.
Your 401k aside, has the cascading collapse of capital impacted your decision to celebrate your birthday at Mastro’s, or take out a second mortgage to go to Disneyland?
Prolly not.
Inflation was supposed to be “transitory.” Oopsies.
Now prices are going up at the fastest pace since before I got my first mortgage (an adjustable rate loan that pegged out at over 12%, as I recall). War in Ukraine and lockdowns in China have made almost everything harder to find and more expensive to buy.
But, my fellow Americans, we’ve been denied the opportunity to have a good time for two years, and we apparently aren’t about to let sticker shock stop the party. We’re paying up, and our appetite for letting loose is allowing some companies to not only charge enough to cover their own rising costs; they’re adding a few bucks on top of that. Because they can.
“Some companies say they can increase their prices more than their cost base is increasing,” says CNBC’s Robert Hum. Robert combs through earnings reports from dozens hundreds of companies each quarter looking for trends, and one trend jumping out is that consumers are still on a spending spree.
A few facts:
The Federal Reserve says consumer credit debt — credit cards, car loans, student loans (not mortgages) — grew by a whopping $52.4 billion in March compared to February, to $4.5 trillion.
Bank of America reports that credit and debit card spending in April was nearly 24% above pre-pandemic levels. For lower-income households it rose even more, up 33%.
Not every company is able to pass along its higher costs to customers, let alone pile on a little more profit margin, but enough are doing so right now to suggest that high gas prices and high food prices haven’t kept most of us off the roads and out of restaurants.
“We’re seeing consumers not just open up their wallets,” Robert tells me, “but they’re paying for premium products and services.”
Examples:
— Delta is seeing more people upgrade. “Premium products continued to lead the recovery” last quarter, the airline says. On domestic flights, business and first class sales are back to 2019 levels.
— Luxury hotel chains are seeing more people fill rooms. Ritz-Carlton rates are up 20%.
— Goodyear sees strong demand for new tires as people go back to work. “Their prices have increased more than their inflation has,” says Robert.
— Visitors to Las Vegas are on a roll — gaming revenue on the Strip in March was 35% above pre-pandemic levels — and CNBC’s Contessa Brewer has noted record high room rates and visitors splurging on extras like private cabanas.
— Robert tells me upgrades even trickle all the way down to toilet paper. “Proctor & Gamble says people are paying a premium for their products” instead of buying generic.
Inflation isn't squeezing Charmin sales/Smith Collection/Gado/Getty Images
Even if customers aren’t upgrading to premium, they’re still paying more for goods and services than they did before Covid.
— Live Nation expects record attendance at concerts this year, and fans are spending 30% more at shows on merch and concessions than they did in 2019.
— Winnebago is doing very well, taking “continued pricing actions to offset component and material cost inflation.”
— Coty cosmetics saw gross margins rise due to strong demand.
— Tyson Foods says beef sales jumped 24% from a year ago, and margins are increasing.
— Nike reported fewer markdowns in the last quarter “and more full-priced selling.”
— Harley-Davidson says it was able to boost margins 4% and “largely offset” the higher cost of materials and labor.
Harley sitting high on the hog/Anadolu Agency, Getty Images
Some companies could make even more money if they had more inventory. “Mercedes talks about, ‘Gosh, I wish there weren’t any supply chain constraints, because our sales would be totally bananas,’” Robert says. A shortage of computer chips is holding back the entire auto industry. (Maybe that’s why people are buying Goodyear tires, to keep their old cars going.)
Competition for chips is coming from unusual places.
Sleep Number, like Mercedes, left money on the table because of supply chain delays, though not the kind you’d expect from a mattress company. The firm (get it?) already has the cotton or whatever you need to make a mattress. Instead, “There’s a shortage of semiconductors,” Robert tells me. “Sleep Number doesn’t just make a bed, they make what’s called ‘a smart bed’… they are essentially a computer now.”
Get the picture? Do you even have enough money left to buy a picture?
With that in mind…
Many companies worry the party will soon be over. After consumers finally release the last, explosive, happy, cathartic dollar of pent-up demand, we may end up with a debt-ridden hangover.
Some firms have decided to not make any predictions about the rest of the year, while companies like Amazon, Etsy and eBay are telling Wall Street that America’s Great Buying Binge is likely to end soon. “All three of those companies warned [about the rest of the year] in their guidance,” says Robert. “They’re not just being hurt by higher costs. They’re forecasting lower sales.”
Have you stopped going out as much? Still planning that vacation you’ve put off since 2020? Let me know whether inflation is just something you feel in the air or if you’re starting to feel it in your wallet.
Join the discussion below, or 📫 jane@janewells.com.
Cover image by ac productions/Getty Images