Amid cooling inflation, many of the largest S&P 500 companies have continued to raise or maintain higher prices, according to a new report from government watchdog group Accountable.US.
Even amid a historic inflationary period, in which the Federal Reserve raised interest rates 10 consecutive times between March 2022 and May of this year, these companies have been able to boost margins with higher prices, the report noted.
On Wednesday, the Fed held its key rate steady for the first time in over a year, but signaled that two more rate hikes are likely coming this year. The report cites a number of major companies that have trumpeted their ability to raise prices on recent earnings calls, including Tyson, General Mills, and PepsiCo.
Up and away. General Mills executives, for instance, said the company was “getting smart about how we look at pricing” while it enacted “list price increases” on a March earnings call. The company raised its fiscal guidance for 2023 in February.
Tyson also enjoyed growth as it raised prices. On a recent earnings call, executives noted the “significant pricing power of our portfolio,” which saw “a year-over-year increase of 7.6%.”
Tyson’s last quarter was impacted by weakening demand for meat, but the company’s net income still increased to $3.2 billion in 2022, up from $3 billion in 2021, while it rewarded shareholders with $1.35 billion in buybacks and dividends.
Companies outside the food sector, like Ulta Beauty, also touted price increases in earnings calls; Ulta CEO Dave Kimbell cited “an elevated level of price increases” as one of the factors behind the beauty industry’s growth.
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For now, it seems unlikely that many large companies will reverse price increases. A New York Times report, which found that the average S&P 500 company increased its profit margin from the end of 2022, noted that some major companies have said “they do not plan to change course and will continue increasing prices or keep them at elevated levels for the foreseeable future.”
What’s next? While some companies, like Unilever, are concerned about a consumer backlash to these price hikes, it has yet to materialize at scale.
“As a consumer during inflation, you know the costs for companies are increasing, so, therefore, you become more receptive to a higher price,” John Zhang, a marketing professor at UPenn's Wharton School, told CNN.
Still, should the labor market lose its resilience, more companies may want to pause price hikes to keep consumers on board, Matt Kramer, national sector leader of consumer and retail for KPMG, told USA Today.
“The question is: When do (companies) start to say, across the board, ‘We’re not increasing prices?’” he asked. “It’s a tough cycle to navigate. I do think we’re not at the brick wall yet, but we’re approaching it.”
In a statement accompanying the report, Liz Zelnick, Accountable.US's director of economic security and corporate power, decried the "corporate profiteering epidemic."
“The Fed has not seen an adequate return on its investment in a policy that has already created fissures in the economy that could lead to recession,” Zelnick said. “It’s just not worth it.”