On Tuesday, during an investor call, Walmart executives predicted that food inflation will continue to be a persistent issue for the foreseeable future.
While headline inflation rates decreased from 9.1% in June 2022 to 6.4% in January 2023, households are still facing the impact of rising food prices, as per the latest data from the Bureau of Labor Statistics. Between January 2022 and January 2023, costs for food at home increased by 11.3%, while costs for food away from home rose by 8.2%, making it more challenging for families to make ends meet.
During Walmart's fourth-quarter earnings call, an analyst asked CEO John Furner and Walmart CEO Douglas McMillon about their expectations for food inflation relative to other product categories. Furner acknowledged that food inflation has been the most persistent driver of elevated prices and only a small decrease has been observed in the last several months. Furner further commented that the company had hoped and expected a more significant decline in food inflation heading into the current year.
McMillon weighed in by stating that dry grocery items and consumables are the most resistant to a decrease in inflation, and the inflationary pressures in these categories are likely to persist. He also mentioned that while there may be some nominal disinflation in the future, it is likely to be offset by the price increases of previous years.
“You’ll probably hear inflation numbers that start to sound lower, but you’ll have to remember that’s on a two-year stack,” McMillon continued. “So if inflation in dry grocery and consumables is only 3% or 5%, that’s on top of 15%. And that’s still a problem for the customer and still a pressure to their wallet.”
Walmart CEO on food inflation: Some is 'stubborn, mid-double digit' https://t.co/U3nPNkiktV
— FOX Business (@FoxBusiness) February 22, 2023
Over the past two years, inflation has continuously diminished purchasing power, leading some households to finance their consumption through savings and debt. According to a recent Gallup survey, 50% of the respondents reported being in a worse financial situation than a year ago, while only 35% believed they were better off financially. These figures constitute the bleakest results for the poll since the economy crashed in 2008 and 2009.
The Bureau of Labor Statistics released its most recent price level report a week after President Joe Biden, during his second State of the Union address, stated that "inflation is coming down." He attributed global inflation to the COVID-19 pandemic's impact on supply chains and Putin's war, which disrupted energy and food supplies. However, he expressed confidence that the country is better equipped than any other country on Earth to address these challenges.
"Higher income families are shopping at Walmart because they’re so price sensitive right now," McMillon remarked last year. "Families making more than $100,000 in household income have driven a lot of our growth during this last quarter," he added. McMillon has previously stated that Walmart is capitalizing on households that had previously shopped at more expensive grocery stores.
"We can actually look at what is our share amongst low-income consumers; we’re gaining share right now among low-income consumers. And that goes back to the fact that we are positioned as the leading brand in terms of value for money and affordability," McDonald's CFO Ian Borden said during the company's third-quarter earnings call last month. Borden emphasized that the fast-food chain's relatively inexpensive offerings had attracted new customers. He also expressed confidence that McDonald's business trends will benefit if the economic environment becomes more challenging in 2023.
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