Inflation talk by S&P 500 CEOs hits 10-year high

The debate may be raging over whether inflation is transitory, but America's CEOs and CFOs haven't been this concerned about rising prices in more than a decade. 

"224 cited the term ‘inflation’ during their earnings calls for the second quarter. This is the highest overall number of S&P 500 companies citing ‘inflation’ on earnings calls going back to at least 2010," John Butters, senior earnings analyst at FactSet, wrote in his weekly note.  

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Drilling down, Butters identified which sectors are climbing the wall of worry the most. 

"At the sector level, the Industrials sector had the highest number of companies that cited ‘inflation’ on earnings calls for Q2 2021 at 50, followed by the Consumer
Discretionary (33), Financials (29), and Consumer Staples (27) sectors," he detailed. 

Some of these calls coincided with gas prices hitting seven-year highs and record-high lumber prices, as well as government reports. 

Consumer Prices for August jumped 5.3%, according to the Labor Department, matching economists’ expectations. Prices rose at a 5.4% annual pace in July, matching the prior month’s gain as the fastest since August 2008.

Producer prices rose at the fastest annual clip on record for the fifth consecutive month in August, jumping 8.3% year over year, as supply chain bottlenecks continue to trip up deliveries. 

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Companies, including Tyson Foods and Kroger, have warned investors and consumers to prepare for price hikes. 

The largest U.S. grocer last week noted it is "passing along higher cost to the customer where it makes sense to do so," said CFO Gary Millerchip on the company’s second-quarter earnings, as reported by FOX Business. Kroger sees inflation running as high as 3%. 

While uncertainty remains about whether inflation will subside, it is not eating into top- or bottom-line growth yet, observes Butters. 

"Both the estimated earnings growth rate for CY 2021 (42.6%) and the estimated net profit margin (12.4%) for CY 2021 are higher today compared to the estimates back on June 30," he added. 

Still, Torsten Slok, chief economist at Apollo Global Management, points to rising wages and looming labor shortages, record home prices, and climbing rents as troublesome foreshadowing. 

"I think that the risk really here is we could have an inflation problem that is going to last at least until the end of this year and potentially well into next year," he said during a recent appearance on "Barron's Roundtable." 

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Following the Federal Reserve's two-day meeting, which concludes on Wednesday, investors will get a fresh update on how the central bank views inflation. Chairman Jerome Powell will certainly be peppered about it during his Q&A press conference on Wednesday, which begins at 2:30 pm ET. 

Additionally, Costco, Nike and FedEx are all reporting earnings this week and could address inflationary trends for their respective businesses. 

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As for the broader market, the S&P 500 is down 2% for the month of September, which traditionally is a rocky month for equities, but with inflation rising stocks may be facing a double headwind in the coming weeks.