profits Archives - Inflation Watch https://inflationwatch.drduru.com/tag/profits/ Watching for inflation here, there and everywhere Sun, 20 Feb 2011 19:15:02 +0000 en-US hourly 1 https://wordpress.org/?v=7.1.4 https://i0.wp.com/inflationwatch.drduru.com/wp-content/uploads/2025/07/cropped-new-hp-money-printing-plates.png-1.webp?fit=32%2C32&ssl=1 profits Archives - Inflation Watch https://inflationwatch.drduru.com/tag/profits/ 32 32 246324047 Will corporate margins be the next victims of inflationary pressures? https://inflationwatch.drduru.com/corporate-margins-victim-of-inflationary-pressures/?utm_source=rss&utm_medium=rss&utm_campaign=corporate-margins-victim-of-inflationary-pressures Sun, 20 Feb 2011 19:15:02 +0000 http://inflationwatch.wordpress.com/?p=1479 Corporate profit margins have hit record levels, but it seems inflationary pressures are waiting in the wings to send those margins back toward the mean. Zero Hedge summarizes the latest Philly Fed report, pointing out that prices paid less prices received has not been higher since 1979. Doug Kass presents two possible outcomes from these […]

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]]> Corporate profit margins have hit record levels, but it seems inflationary pressures are waiting in the wings to send those margins back toward the mean. Zero Hedge summarizes the latest Philly Fed report, pointing out that prices paid less prices received has not been higher since 1979.

Doug Kass presents two possible outcomes from these pressures:

    “

  1. businesses try to increase prices, can’t, and see their margins cut;

    2. or

  2. businesses do raise prices, people buy less, and revenue gets hit.

    3. ”

The stubbornly high unemployment rate has convinced many that resistance to price increases is a foregone conclusion. However, I would like to layer on a more nuanced scenario here. Given that increasing employment is the Federal Reserve’s stated goal of its latest quantitative easing program, we should assume that the Fed’s response to either of the above scenarios will be more quantitative easing. If profits or revenues fall, companies will not hire more workers in response. If anything, companies will fire more workers. In other words, even with inflationary pressures building in the economy, especially in scenario #2, the Federal Reserve could actually find more reason to continue adding to those pressures. We may not get a self-reinforcing negative feedback loop, but it will feel close!

The Bank of England already faces this conundrum of accomodative monetary policies even in the face of stubbornly high inflation – but governor Mervyn King has found a lot of comfort in the United Kingdom’s current output gap and a conveniently tame outlook for inflation.

So, what if quantitative easing actually works and increases employment? Well, there should be a lot of increased prices waiting to eat into those newly minted paychecks.

It seems everywhere we look, inflationary pressures are inescapable. Corporate margins may be the last canary in the coal mine…

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]]> 1479 Inflation may loom as material costs pressure earnings https://inflationwatch.drduru.com/inflation-may-loom/?utm_source=rss&utm_medium=rss&utm_campaign=inflation-may-loom Thu, 04 Nov 2010 02:50:41 +0000 http://inflationwatch.wordpress.com/?p=1376 In “Business Earnings Climb Despite Rising Costs“, the WSJ reports that companies reporting third quarter results are starting to sing a common refrain: material costs are rising fast and threaten to pressure profits. Soon, these pressures could translate into inflation at the consumer level…just as the Federal Reserve is rolling out a second phase of […]

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]]> In “Business Earnings Climb Despite Rising Costs“, the WSJ reports that companies reporting third quarter results are starting to sing a common refrain: material costs are rising fast and threaten to pressure profits. Soon, these pressures could translate into inflation at the consumer level…just as the Federal Reserve is rolling out a second phase of quantitative easing to fight the exact opposite force of deflation.

The article cites inflationary (or stagflationary) examples from paper and packaging makers, apparel manufacturers, tire companies, and office supply distributors.

Avery Dennison Corporation is experiencing particularly acute problems with higher material costs:

“Label maker Avery Dennison Corp. is battling higher raw material costs with price hikes, but is still losing ground. CFO Mitchell Butier said while the company keeps adding more price increases to fight rising raw materials, it continues ‘to be behind that curve.’ The company announced a ‘mid to high single-digit’ price increase in North America, Chief Executive Dean Scarborough said. ‘Pretty substantial…but we need it. Our margins are really taking a hit,’ he added.”

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