A theme seems to be emerging as we monitor the release of information made by public companies’ earnings reports and shared forward looking guidance – the decision to increase prices on their products and services.
A company’s decision to increase prices can be made based on current or anticipated increased costs of production. The time following each of the World Wars as well as the 1970s are considered periods where high inflation existed. On April 20th, The Wall Street Journal published an article citing P&G’s (Proctor & Gamble Co.) announcement to begin implementing price increases on specific products later this year due to increased raw material and transportation costs. The link to that article can be found below along with a similar article by CNBC regarding Coca Cola & Co.
The act of increasing prices to keep up with rising costs often has a domino effect throughout the supply chain and can begin seeping into other parts of the economy. Historically, a national inflation rate of 2-4% per year (measured by the Consumer Price Index) is an indicator that the economy is growing steadily. However, a high rate of inflation can become a problem and difficult to control if unaddressed. It is the duty of the government and central banks to try and implement policy changes to help contain a healthy level of growth.
At Sigma, we account for inflation in our financial modeling and regularly discuss it with our clients.
All comments and suggestions are welcome.
Daniel J. Robinson, CFP®