Catch up quick: New survey data released on Monday from Deutsche Bank shows 61% of financial market professionals say higher than expected inflation is the largest risk to markets.
During the Q1 earnings season, 197 of the S&P 500 companies discussed inflation on earnings calls. This was the highest number in at least 10 years, according to FactSet.
But, but, but: FactSet analyst John Butters took a closer look at what companies were saying and found — despite rising costs — many of them were actually raising expectations for profit margins and net earnings over the past three months.
- "For the entire S&P 500, both the estimated earnings growth rate (34.8% vs. 24.9%) and estimated net profit margin (12.1% vs. 11.4%) are also higher today compared to March 15," Butters wrote in a report.
Go deeper: And while the Deutsche Bank survey found market pros are concerned about inflation, it also found that 72% believe the recent bout of inflation is either "mostly transitory" or "virtually all transitory."
- That suggests they think inflation is, at most, a temporary risk.
The intrigue: For years, the primary way companies lifted profits was by cutting costs. Now, it seems companies are finding they can raise prices faster than costs are rising, thanks to a customer ready to spend.
Threat level: Runaway inflation can become a self-fulfilling prophecy. If enough people are worried about it even in the short term, business owners could raise prices proactively, or consumers could start hoarding goods.
What’s next: As we enter the second half, it remains to be seen when the supply chain bottlenecks and the labor shortages driving inflation will eventually ease up.
