McDonald's employee gives change to a customer.
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Some of America's best-known companies say their consumers are being squeezed by inflation as prices continue to rise.
Inflation has dominated corporate America's discourse for the past three years, following the pandemic-induced easing of monetary policy and trillions of dollars in Covid aid. Although the pace of price growth has slowed since the Federal Reserve began raising rates in early 2022, consumers are still feeling the pressure — and often find their wallets tightening — as costs continue to rise.
“It is clear that broad consumer pressure continues around the world,” he says. McDonald's CEO Chris Kempczinski said this early on Tuesday about the fast food chain's profit figures. 'Consumers move on[d] to be even more discriminatory with every dollar they spent because they faced higher prices in their daily expenses.”
Persistent inflation has created a dark cloud over the way ordinary Americans perceive the health of the economy. Consumer confidence in April reached the lowest level since mid-2022 as high prices remained top of mind, according to data released by the Conference Board on Tuesday.
Workers' wages have continued to rise, as first-quarter employment cost statistics released Tuesday show. But so do the prices paid by the average consumer, eroding the additional income from those higher wages.
It is fair to say that inflation has fallen significantly. The consumer price index – a broad range of goods and services – rose 3.5% year-on-year in March, compared with the same month a year ago.
That's well below a 40-year high of 9.1% in mid-2022 but remains above the Fed's 2% target, whose officials have pointed to persistent inflation as a reason to keep interest rates higher.
And that persistent annual growth of 3.5% sours economic sentiment: even after a period of runaway inflation, prices do not really fall. That's a problem for McDonald's and a host of other companies serving customers in shock.
'Under pressure'
At McDonald's, this was reflected in same-store sales growth, which was slightly lower than Wall Street expected. Kempczinski said the Chicago-based company must be “laser-focused” on affordability to bring in diners, as prices are mainly displacing low-income consumers.
Managers at 3M, the maker of Scotch tape and Post-it Notes that also reported on Tuesday, told analysts it sees “continued weakness in consumer spending.” Although 3M's first-quarter earnings and revenue exceeded expectations, management expects consumer spending to be “muted” this year.
Last week, Newell Brands CEO Chris Peterson joined the chorus of executives pointing to inflation as the main factor roiling their companies. Although the owner of Coleman and Rubbermaid products beat analysts' expectations for the first three months of the year, he issued soft guidance on earnings for the current quarter and said sales are likely to decline.
“The categories in which we compete remain under pressure, with consumers continuing to carefully manage their discretionary spending as the cumulative impact of inflation on the costs of food, energy and housing has outpaced wage growth,” said Peterson.
But not all consumer-facing companies are feeling the heat.
Colgate Palmolive CEO Noel Wallace said last week that volume growth has largely returned because “inflation became more favorable and prices started to stabilize.”
Bee Coca-ColaManagement has seen a shift towards an emphasis on value, with the purchasing power of lower-income consumers taking a particular hit. Still, executives said at the soft drink maker's earnings call Tuesday morning that American consumers “remain in good shape.”
— DailyExpertNews's Robert Hum and Amelia Lucas contributed to this report.