Earnings Estimates On Consumer Staples Already Sliding, As Inflation Starts To Sting

If you’re like many and worried about the U.S. inflation outlook, either from the costs to businesses or individuals, you now have a near rock solid reason to get out of consumer staples, according to RBC.

Admittedly, most companies can’t escape the implicit tax imposed by high or rising commodity prices, but the work with our “margin pressure gauge” suggests that profitability metrics for Consumer Staples are especially vulnerable to rising input costs (Exhibit 28, RHS). This is probably why we have also started to see deterioration in the sector’s earnings estimate revisions profile over the past couple of months.

Today’s ISM Manufacturing number only increased slightly, but it continued to show strength in terms of prices paid for businesses.

From the ISM Report:

The ISM Prices Index registered 82 per cent in February, 0.5 percentage point higher than the 81.5 per cent reported in January and the highest reading since July 2008. This is the 20th consecutive month the Prices Index has registered above 50 per cent. While 66 per cent of respondents reported paying higher prices and 2 per cent reported paying lower prices, 32 per cent of supply executives reported paying the same prices as in January.

So with prices going up for businesses, now may be the time to get out of consumer staples, according to RBC.


Photo: RBC

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