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Like prices, inflation talk is going through the roof

Yahoo! Finance logo Yahoo! Finance 7/27/2021 Myles Udland

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Tuesday, July 27, 2021

Companies can't stop bringing up inflation on earnings calls

It likely comes as little surprise to readers that corporate executives can't stop talking about inflation.

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

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

The results show an eye-popping 1,000%. 

"Mentions of 'inflation' on 2Q earnings calls topped 1Q levels and jumped to a record high, based on BofA's Predictive Analytics team’s analysis," Subramanian wrote. 

"On a [year-over-year] basis, inflation mentions rose over 1000% YoY, outpacing the 900% increase we saw last quarter. Notably, labor-related mentions rose the most among inflation categories we track so far in 2Q, up 107% YoY. This compares to last quarter when labor-related mentions rose the least (+12% YoY), pointing to increased wage pressure," she added.

chart: Inflation mentions on earnings calls are up a whopping 1,000% compared to last year, according to data from Bank of America Global Research. (Source: Bank of America Global Research) © Provided by Yahoo! Finance Inflation mentions on earnings calls are up a whopping 1,000% compared to last year, according to data from Bank of America Global Research. (Source: Bank of America Global Research)

Video: 'It’s pretty obvious that a significant part of this [inflation] is transitory': Chief Investment Strategist for Citi Global Wealth (Yahoo! Finance)

Replay Video

On Monday, we argued that one of the big themes we've seen so far during earnings calls are references to 2019. 

With pandemic-related distortions showing up in all kinds of economic data, looking back — not only at the last year, but the last two — is the easiest way for executives to suss out which trends might stick, and which might prove transitory. And the debate about the "transitory" nature of rising prices sits at the heart of gauging the economy's present health, and future challenges. 

For Subramanian and the team at BofA, that inflation pressures related to labor are showing up more frequently than discussions about raising prices, suggesting profit margins face downside risks. In particular, consumer discretionary and industrial stocks face the toughest margin challenges in a world with structurally higher wages. 

By Myles Udland, reporter and anchor for Yahoo Finance Live. Follow him at @MylesUdland

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