Samuel Rines, Chief Economist of Corbu LLC, has voiced his concerns about companies using macroeconomic events to test consumer tolerance to price increases.
Rines believes that this strategy could make the Federal Reserve’s hawkish policy meaningless, and investors who rely too much on U.S. economic data may be following a false narrative.
Rines cited examples such as PepsiCo, which used its 4% Russian revenue loss from the Ukraine war to justify double-digit price increases. Rines argues that competitors Coca-Cola, Dr. Pepper, and Snapple followed suit.
In addition, the aviation-themed chicken wing chain Wingstop raised the cost of their food using the rising price of chicken wings, even when the raw ingredient price fell 50%. Rines suggested that Middle American businesses, such as Cracker Barrel, also test consumers with wages and higher menu prices.
According to Rines, while hotel and cruise ship occupancies haven’t returned to pre-pandemic levels, the rate per room and booking volume has significantly increased.
This evidence, coupled with Rines’ theory, raises concerns that companies may continue to push price increases beyond what consumers are willing to tolerate, causing inflation that the Fed’s policy may not be able to control.
Rines’ comments highlight the importance of investors and businesses looking beyond the data and analyzing the underlying causes of inflation.
It may be essential to understand the motivations behind companies’ price increases to predict future inflation and make informed investment decisions.
