DateMay 5, 2018
Earnings results in the US have so far been met with the market’s approval, but below the surface there are signs of cost inflation starting to pull down profits. After years of waiting, there are now some clear signs inflation is becoming entrenched in markets. Here are the top three:
Manufacturing conglomerates Caterpillar (CAT) and 3M (MMM) have both reported rising input costs that have eaten away at operating profits. Meanwhile, the largest consumer manufacturers are battling either lower revenue or higher cost of sales, putting pressure on margins that could result in a flow-on effect to end consumers.
Revenue versus cost of sales for Q1 2018 (% growth on Q1 2017)
Source: Lonsec, company reporting
After falling through 2015 and 2016, prices paid for manufacturing inputs are now growing at the fastest rate since 2011. Input prices have risen in conjunction with commodity prices, including oil and metals. US importers are also expected to feel the pinch of President Trump’s escalating tariff war.
Manufacturing input prices are growing at the fastest rate since 2011
While the Fed kept rates on hold in May, both headline and core measures of inflation are starting to push up. In particular, the Core PCE Index—the Fed’s preferred inflation measure—is set to rise above 2%, giving the Fed further impetus to hike rates through 2018.
Core measures of inflation are already at or near the Fed’s 2% target
Source: Lonsec, BLS
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