"Inflation Cools Down: S&P 500 Companies Breathe a Sigh of Relief, but Mixed Signals in the Economy Persist"

"Inflation Cools Down: S&P 500 Companies Breathe a Sigh of Relief, but Mixed Signals in the Economy Persist"

 




Inflation has been a significant concern for businesses over the past two years, with rising prices of essential commodities impacting their bottom lines. However, according to a new FactSet report, the number of S&P 500 companies citing inflation on their earnings calls has decreased for three consecutive quarters. Although 278 companies mentioned inflation during their Q1 earnings calls, this number is the lowest among S&P 500 companies since Q2 2021.


While businesses are feeling better about the inflation outlook, there are mixed signals in the economy. April's Consumer Price Index (CPI) rose 4.9% year over year, down from last June's peak of 9.1%. However, prices remain above the Federal Reserve's 2% inflation target. "Super core" inflation, which excludes food, energy, and shelter costs, increased by 0.4% in April, compared to 0.3% in March.


The Producer Price Index (PPI) for April also showed a year-over-year increase of 2.3%, the slowest annual increase since 2021. Despite these mixed readings, concerns persist that the Fed may continue with interest rate hikes, which could surprise the stock market.


Businesses such as See's Candies have been forced to raise prices on consumers to cover increased costs of ingredients and labor, with the price of sugar and butter doubling and increasing over 100%, respectively. However, See's Candies CEO Pat Egan hopes that the peak of inflation has been reached and that prices will soon stabilize.


The financial and industrial sectors have the highest number of companies mentioning inflation on their earnings calls, while communication services and utilities have the fewest. Although businesses may be breathing a sigh of relief on inflation, the economy's mixed signals suggest that they should remain vigilant and prepare for further inflationary pressures in the future.