Inflation may loom as material costs pressure earnings

In “Business Earnings Climb Despite Rising Costs“, the WSJ reports that companies reporting third quarter results are starting to sing a common refrain: material costs are rising fast and threaten to pressure profits. Soon, these pressures could translate into inflation at the consumer level…just as the Federal Reserve is rolling out a second phase of quantitative easing to fight the exact opposite force of deflation.

The article cites inflationary (or stagflationary) examples from paper and packaging makers, apparel manufacturers, tire companies, and office supply distributors.

Avery Dennison Corporation is experiencing particularly acute problems with higher material costs:

“Label maker Avery Dennison Corp. is battling higher raw material costs with price hikes, but is still losing ground. CFO Mitchell Butier said while the company keeps adding more price increases to fight rising raw materials, it continues ‘to be behind that curve.’ The company announced a ‘mid to high single-digit’ price increase in North America, Chief Executive Dean Scarborough said. ‘Pretty substantial…but we need it. Our margins are really taking a hit,’ he added.”

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