Just like prices, inflation talk is through the roof

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Tuesday 27 July 2021

Companies can’t stop raising inflation on earnings calls

It probably won’t surprise readers that business leaders can’t stop talking about inflation.

After all, prices rose across the economy in June at the fastest pace since 2008 — and between labor, materials and shipping, it has become more expensive and challenging to get just about anything done in the business world.

In a note to clients published Monday, the equity and quantitative strategy team at Bank of America Global Research led by Savita Subramanian has provided some numbers to show just how big the jump in inflation listings has been during this earnings season.

The results show a dazzling 1,000%.

“Inflation mentions on 2Q earnings calls hit 1Q levels and jumped to an all-time high, based on analysis by BofA’s Predictive Analytics team,” Subramanian wrote.

“On a [year-over-year] On that basis, inflation was up more than 1000% year-over-year, ahead of the 900% increase we saw last quarter. In particular, employment listings rose the most of the inflation categories we’ve tracked so far in the second quarter, up 107% year-over-year. This compares to last quarter, when employment-related listings rose the least (+12% year-on-year), indicating increased wage pressures,” she added.

According to data from Bank of America Global Research, inflation mentions on earnings calls are up a whopping 1,000% compared to last year. (Source: Bank of America Global Research)

On Monday, we argued that one of the big themes we’ve seen in the earnings calls so far is references to 2019.

With pandemic-related disruptions appearing in all sorts of economic data, looking back — not just the past year, but the last two as well — is the easiest way for executives to figure out which trends may linger and which may be transient. And the debate about the “temporary” nature of rising prices is at the heart of measuring the economy’s current health and future challenges.

For Subramanian and the team at BofA, inflationary pressures related to labor come out more often than discussions of price increases, suggesting that profit margins involve downside risks. Consumer discretionary and industrial stocks in particular face the greatest margin challenges in a world of structurally higher wages.

Through Myles Abroad, reporter and anchor for Yahoo Finance Live. follow him up @MylesUdland

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