McDonald’s employee gives change to a customer.
Jeffrey Greenberg | UIG | Getty Images
Some of America’s best-known companies say their consumers are suffering from inflation as prices continue to rise.
For the past three years, inflation has dominated corporate America’s discourse after the pandemic loosened monetary policy and cost trillions of dollars in Covid relief. Although the pace of price growth has cooled since the Federal Reserve began raising interest rates in early 2022, consumers are still feeling the pressure — and often their wallets are tightening — as costs continue to rise.
“It is clear that broad-based consumer pressures continue to exist globally,” MC Donalds CEO Chris Kempczinski said on the fast food chain’s earnings call early Tuesday. “Consumers continue to be more selective with every dollar they spend as they face higher prices on their everyday spending.”
Persistent inflation has created a dark cloud over how everyday Americans perceive the health of the economy. Consumer confidence hit its lowest level since mid-2022 in April as high prices remained in focus, according to data released Tuesday by the Conference Board.
Workers’ wages continued to rise, according to first-quarter labor cost statistics released Tuesday. But this also applies to the prices paid by the typical consumer, who generate additional income through higher wages.
However, the inflation rate has fallen significantly. The consumer price index – a broad basket of goods and services – rose 3.5% annually in March compared to the same month last year.
That’s well below the 40-year peak of 9.1% in mid-2022, but still above the Fed’s 2% target, whose officials have pointed to stubborn inflation as a reason to keep interest rates on hold.
And that stubborn 3.5% annual growth is dampening economic sentiment: Even after a period of runaway inflation, prices aren’t really falling. That’s a problem for McDonald’s and many other companies that serve customers experiencing sticker shock.
‘Negative pressure’
At McDonald’s, this was reflected in same-store sales growth falling slightly below Wall Street’s expectations. Kempczinski said the Chicago-based company needs to be “laser-focused” on affordability to attract guests as prices push out low-income consumers.
Managers at 3M, the maker of tape and Post-it notes, which also reported Tuesday, told analysts that it sees “continued weak consumer spending in consumer discretionary.” While 3M’s first-quarter earnings and sales beat expectations, management expects consumer spending to be “subdued” this year.
Newell brands CEO Chris Peterson joined the chorus of executives on April 26 pointing to inflation as the primary cause of strain on their companies. Although the owner of Coleman and Rubbermaid products beat analyst forecasts for the first three months of the year, the company gave a soft forecast for current quarter earnings and said sales would likely decline.
“The categories in which we compete remain under pressure as consumers continue to carefully manage their discretionary spending as the cumulative impact of inflation on food, energy and housing costs has outpaced wage growth,” Peterson said.
But not all consumer-focused companies are feeling the pinch.
Colgate Palmolive CEO Noel Wallace said April 26 that volume growth had largely returned as “inflation moderated and prices began to stabilize.”
At CokeManagement has noted a greater emphasis on value and said the purchasing power of low-income consumers has taken a hit. Still, executives said on the soft drink maker’s earnings call Tuesday morning that the American consumer “remains in good shape” across all income levels.
— CNBC’s Robert Hum and Amelia Lucas contributed to this report.
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2024-04-30 18:48:44
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