McDonald’s employee giving change to a customer.
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Some of America’s best-known companies say their consumers are feeling the pinch of inflation as prices continue to rise.
Inflation has dominated corporate America’s discourse over the past three years, following pandemic-induced easing of monetary policy and trillions of dollars in Covid relief. Although the pace of price growth has slowed since the Federal Reserve began raising interest rates in early 2022, consumers are still feeling the pressure – and often tightening the purse strings – as costs continue to rise. climb.
“It is clear that widespread consumer pressures persist around the world,” McDonalds said CEO Chris Kempczinski during the fast food chain’s earnings call Tuesday. “Consumers continue to be even more discriminating with every dollar they spend as they face high prices in their everyday spending.”
Persistent inflation has created a dark cloud over how Americans view the health of the economy. Consumer confidence hit its lowest level since mid-2022 in April, with high prices remaining a priority, according to data released Tuesday by the Conference Board.
Workers’ wages continued to rise, as evidenced by first-quarter employment cost statistics released Tuesday. But so do the prices paid by the typical consumer, which eat into the additional income generated by these higher wages.
Certainly, the inflation rate has fallen considerably. The consumer price index – a broad basket of goods and services – rose at an annual rate of 3.5% in March compared to the same month last year.
That’s well below the 40-year high of 9.1% seen in mid-2022, but still above the 2% target set by the Fed, whose officials have pointed to stubborn inflation as the reason for the maintaining higher interest rates.
And this stubborn annual growth of 3.5% is deteriorating economic sentiment: even after a period of galloping inflation, prices do not really fall. That’s a problem for McDonald’s and a host of other companies serving customers who are feeling sticker shock.
‘Under pressure’
At McDonald’s, this translated into same-store sales growth that was slightly lower than Wall Street expected. Kempczinski said the Chicago-based company needs to be “laser focused” on affordability to attract diners.
The leaders of 3M, the maker of tape and Post-it notes, which also reported Tuesday, told analysts it was seeing “continued weakness in consumer discretionary spending.” Even though 3M’s earnings and revenue beat expectations in the first quarter, management said it expects consumer spending to be “moderate” this year.
Last week, Brands Newell CEO Chris Peterson joined the chorus of executives pointing to inflation as the main force plaguing their businesses. Although the owner of Coleman and Rubbermaid products beat analysts’ forecasts for the first three months of the year, it issued profit forecasts for the current quarter and said revenue was likely to 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 prices has exceeded the wage growth,” Peterson said.
But not all consumer-facing businesses are feeling the pressure.
Colgate-Palmolive CEO Noel Wallace said last week that volume growth had largely recovered as “inflation became more benign and prices began to stabilise”.
HAS Coca-Cola, management saw consumers focusing on value. Still, executives said during the soft drink maker’s earnings conference call Tuesday morning that the U.S. consumer “remains in good shape.”
— CNBC’s Robert Hum and Amelia Lucas contributed to this report.
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