Inflation puts businesses off balance as recovery slows

Companies will soon start releasing their latest quarterly financial results and investors have been warned that inflation will spike.

Retailers, automakers and a wide range of manufacturers have all warned investors that a tight supply chain and higher raw material costs add to expenses and hurt profits. A resurgence of COVID-19 in the third quarter knocked many industries off balance as they recovered from the pandemic crisis.

Many companies were able to pass higher costs on to consumers during the first half of the year without much noise as the economy recovered from the pandemic. But consumer spending, which is key to economic recovery, slowed a bit over the summer as cases of COVID-19 increased. Still, demand remained strong for many products, but companies just didn’t have the supply and this slowed sales growth for many.

“We believe that the consumer can absorb some of these higher prices, the challenge is knowing what happens when a company doesn’t have the offer to sell,” said Jay Pestrichelli, CEO of the company. ZEGA Financial investment.

Paint maker Sherwin-Williams lowered its sales guidance for the third quarter due to supply issues and higher costs. Home builders, including PulteGroup and Lennar, have warned that higher material costs and supply delays are hurting operations. Nike was one of the biggest names in retail to cut sales forecasts due to supply delays.

Many other companies have issued similar warnings at a time when the Federal Reserve has changed its message on inflation somewhat. The central bank has spent much of the year saying that the rise in inflation will be short-lived and linked to the recovery. At the end of September, Federal Reserve Chairman Jerome Powell acknowledged that inflation has remained higher than expected longer than expected and could continue next year.

Fears that inflation will become a reality in the longer term for the economy is reflected in the bond market. The 10-year Treasury yield has fallen from 1.32% to 1.54% in the past two weeks.

Analysts warn that persistent inflation could continue to weigh on business results and consumers’ willingness to spend, which would mean a continued slowdown in economic growth.

“If you end up having lower growth and higher inflation, then you get stagflation and that’s not good for the market,” Pestrichelli said.

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