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High Inflation Rattles Corporate America; Bigger Problems Ahead Lombardi Letter 2021-11-12 09:32:58 inflation Federal Reserve price increases us economy Inflation is starting to rattle businesses and, ultimately, American consumers. We are told that inflation is temporary, but how long could the transition period last? The longer the inflation persists, the bigger the economic problems could be. Inflation,News

High Inflation Rattles Corporate America; Bigger Problems Ahead

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High Inflation Rattles Corporate America; Bigger Problems Ahead

Troublesome: Inflation Rate Remains Resilient

Over the past few months, we’ve heard over and over again that high inflation in the U.S. is going to be temporary. We’ve heard the same rhetoric from Wall Street and the Federal Reserve.

Here’s the problem: no one seems to want to talk about how long the transition period will be.


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Not too long ago, the U.S. Bureau of Labor Statistics reported that, on an annual basis, inflation in the U.S. was 5.4% in September. (Source: “Consumer Price Index Summary,” U.S. Bureau of Labor Statistics, October 13, 2021.)

As a matter of fact, the rate of price increases in the U.S. economy has been above five percent for more than the past four months. Don’t forget, these price increases are based on the official measures of inflation. If you look at alternative measures, inflation in the U.S. is running much higher.

Corporate America Raises Prices

The current inflation rate is much higher than what we’ve been used to for some time. Prior to the COVID-19 pandemic, the inflation rate in the U.S. was less than 2.5%. Now, it’s more than double that.

Here’s the kicker: as higher prices persist, they’re becoming a headache for corporate America. We’re starting to see businesses talk about the cost pressures they’re feeling and how they’re planning to pass on the costs to consumers.

Recently, Procter & Gamble Co (NYSE:PG) said it will be raising the prices of a variety of its products. During the company’s fiscal 2022 first-quarter earnings call, the CFO, Andre Schulten, said, “We will offset a portion of these higher costs with price increases and with productivity savings.” (Source: “Procter & Gamble Combats Inflation With Price Hikes in Most Categories,” Fox Business, October 19, 2021.)

Procter & Gamble has already raised the prices of certain products in its Baby, Feminine & Family Care, and Home & Fabric Care lines. In the next few months, it plans to raise prices in its Grooming, Skin Care, Oral Care, and other product lines.

All in all, the company will be raising prices in nine of its 10 product categories.

It’s not just Procter & Gamble raising prices. This is happening everywhere. According to the National Federation of Independent Business, in September, 46% of small businesses in the U.S. said they planned to raise their prices in the next three months—the highest figure since 1986! (Source: “Accelerating Inflation Spreads Through the Economy,” The Wall Street Journal, October 13, 2021.)

And the list goes on. You could also bet that if inflation continues to be resilient, more businesses will raise their prices.

Economic Crisis Around the Corner

Dear reader, if you’ve been reading Lombardi Letter for a while, you’ve been warned about this many times. I was talking about a future five- to six-percent inflation rate a few years ago, when the rate was two percent.

The current situation isn’t shocking to me whatsoever.

What I’m wondering at the moment is how things will progress. Understand this basic fact: inflation is a drag on consumption. If consumption takes a hit, will the U.S. economy be fine? The country’s economy can’t remain strong without robust consumption.

Here’s something more to think about: Will the Federal Reserve raise interest rates much faster than currently expected? Raising rates at a time when consumption is taking a hit could lead to a severe economic slowdown.

Lastly, for inventors: inflation is almost like a silent tax on wealth. The higher the inflation rate, the higher the returns needed to break even. So, adjust your investments accordingly. There are assets out there that could provide hedges against inflation.

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