Companies are trying to navigate the complicated moment, gauging whether input cost increases will continue for a second year — and whether and how to pass them on to consumers.
Chewy, the pet goods retailer, recently signed a new freight contract that will cost it more this year, and in the final quarter of 2021 it also faced higher labor costs. But it is hoping that those trends do not last, or that it can offset the climbing expenses through efficiencies.
“As we close the book on 2021 and move forward in 2022, we are already seeing improvements in labor availability, inbound shipping costs and pricing, while out-of-stock levels and outbound shipping costs remain elevated,” Sumit Singh, Chewy’s chief executive, said on an earnings call this week. “Ultimately, we believe most of these challenges are not permanent in nature.”
Other companies have been expecting consumer demand to face some challenges this year, as households get past the government stimulus checks that boosted their spending ability in 2021.
Inflation F.A.Q.
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What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.
How does inflation affect the poor? Inflation can be especially hard to shoulder for poor households because they spend a bigger chunk of their budgets on necessities like food, housing and gas.
Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
“For our business in the industry we’re in, the stimulus checks are a short-term impact from last year,” Jon Barker, chief executive at Sportsman’s Warehouse, said on an earnings call this week. “And while fuel costs and inflation will certainly have an impact on disposable income for our consumer, we actually believe and are confident that our industry is more — is able to weather those changes better than most.”
Thursday’s report showed that consumer spending fell in February when adjusted for inflation, pulling back by 0.4 percent from January, a slightly bigger decline than economists expected. It is still rising before price increases are accounted for, though. Personal income also continued to rise before being adjusted for inflation, as wage growth takes over where government help is leaving off.
Household balance sheets are still in decent shape even as some support payments lapse. Many people paid down debt during the pandemic, and others are seeing pay gains that could help them sustain spending in the months ahead. Households across the income spectrum built up savings during the pandemic, partly thanks to the government relief payments.
Article source: https://www.nytimes.com/2022/03/31/business/economy/pce-inflation-february.html
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