Mounting inflation concerns are poised to be the “prevailing narrative” as investors continue analyzing the last quarter’s earnings, writes the Real Money team over at Action Alerts Plus.
The challenges are coming from all quarters. Shipping prices continue to rise, as shortages of containers and trucks put pressure on virtually all parts of the supply chain. Energy prices have gone up and that looks likely to continue. The prices of many raw materials have climbed over the past 18 months, and production lines continue to struggle with full reopening in just about every country around the world.
Singling out two sectors, the AAP team wrote that cotton prices have surged to 10 year highs recently, touching levels not seen since 2011. The key fiber in clothing is up about 50% so far this year. “Meanwhile, the Green Markets North America Fertilizer Price Index soared last week to a new record high … driving up costs for farmers and threatening to worsen food inflation.”
With the price surges, “the question to be answered is to what degree companies can pass along these price increases. Our concern is that consumers will feel the pinch of widespread price increases that sap their disposable spending dollars as utilities and transportation costs rise. This also raises questions for the upcoming holiday season, which is likely to see far less discounting and promotional events as companies grapple with higher costs.”
All of this, of course, also comes on the heels of massive inflation across both sides of the housing sector (owned and rented). As consumers dedicate more and more of their income to housing costs this, too, drains potential spending power.
“It seems we're not the only ones thinking about all of this and what it means for the speed of the U.S. as well as the global economy,” the team noted citing Goldman Sachs’ move to cut its U.S. 2021 GDP forecast to 5.6% from 5.7%, and reduce its 2022 GDP outlook to +4.0%, down from +4.4%.