Back in June of this year, I posted that inflation wasn’t going to be transitory. Today it was reported that inflation increased to a 6.8% annualized rate.
The last earnings season confirmed my view of persistent inflation. The vast majority of companies handedly beat earnings expectations. Why? Most executives are under constant pressure to continually increase EPS (earnings per share). So the message to their customers is that increased prices are unavoidable and blamed on the macro economy. These higher selling prices trickle down to the EPS numbers, and the C suite can confirm they are meeting shareholder’s expectation with increased EPS.
Just like a kid who has gotten into trouble, the blame is placed on someone or something else. I’ve seen that played out many times while my wife and I raised our kids. Remember the book “All I Really Need to Know I Learned in Kindergarten”?
When inflation is reported, the numbers reported are backward looking. Therefore, the numbers came from the recent past when the EPS numbers were looking really rosy.
The question is “Will the ultimate consumer bulk at the increases or try to outrun them by buying before they rise even higher?” Given how enamored consumers have been with spending, I question their proclivity to slow down.
The older consumers who lived through the 1970’s will likely “tow the line”, but those born later who had not yet experienced the difficulties with inflation will learn a stiff lesson.
Be smart, be well-read, be aware and be successful.
