Companies are trying to navigate the complicated moment, gauging whether input cost increases will continue for a second year — and whether and how to pass that on to consumers.
Chewy, the pet goods retailer, recently signed a new freight contract that will cost it more this year; and in the final quarter of 2021, it also faced higher labor costs. But it is hoping that those trends do not last, or that it can offset the climbing expenses through efficiencies.
“As we close the book on 2021 and move forward in 2022, we are already seeing improvements in labor availability, inbound shipping costs and pricing, while out-of-stock levels and outbound shipping costs remain elevated,” Sumit Singh, the firm’s chief executive officer, said on an earnings call this week. “Ultimately, we believe most of these challenges are not permanent in nature.”
Other companies have been expecting consumer demand to face some challenges this year, as households get past the government stimulus checks that boosted their spending ability in 2021.
Inflation F.A.Q.
What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
“For our business in the industry we’re in, the stimulus checks are a short-term impact from last year,” Jon Barker, chief executive officer at Sportsman’s Warehouse, said on a March 29 earnings call. “And while fuel costs and inflation will certainly have an impact on disposable income for our consumer, we actually believe and are confident that our industry is more — is able to weather those changes better than most.”
Thursday’s report showed that consumer spending fell in February after adjusting for inflation, pulling back by 0.4 percent from January, slightly more than economists expected. It is still rising before accounting for price increases, though. Personal income also continued to rise before adjusting for inflation, as wage growth takes over where government help is leaving off.
Household balance sheets are still in decent shape even as some support payments lapse. Many people paid down debt during the pandemic, and others are seeing pay gains that could help them to sustain spending in the months ahead. Households across the income spectrum built up savings during the pandemic, partly thanks to the government relief payments.
