Inflation and supply chains are topics of increasing attention, from both central banks and companies, as expectations move away from the thought that rising prices would be transitory. Increased costs from higher import fees and logistics prices were felt through the supply chain in 2021, from packaging to lawnmowers to food. An analysis of earnings call transcripts from S&P Capital IQ shows that mentions of inflation-related words appeared in 71.0% of calls in the fourth quarter of 2021, up from 39.2% in the comparable period a year ago. This is a reversal from expectations at the beginning of the COVID-19 pandemic, when companies expected a fall in economic activity and an extended recession.
Talk of "supply chain" and "logistics" have increased alongside inflation, with up to 77.8% of calls for "supply chain" and 61.2% of calls for "logistics" in the fourth quarter. These are significantly higher than pre-pandemic levels, such as the fourth quarter of 2019, when 44.1% of calls mentioned supply chain topics and 43.4% of calls mentioned logistics. The increases come as companies become progressively more concerned about rising costs passing through their supply chains, how to pass those costs on to their customers, and how to ensure that supply arrives where and when it is needed.
Panjiva has discussed previously how rising logistics costs act as an increase in raw material costs, thereby raising the cost of goods delivered at each step of the supply chain. High shipping fees often entail a lack of reliability, which tends to incentivize "just in case" orders that put further upward pressure on logistics prices and lead times. It is worth noting that concerns involving increased costs from Section 301 tariffs on China have plummeted, which could mean more companies are open to the additional expense if the goods arrive on time. Mentions of trade war topics in the fourth quarter of 2021 reflected this, occurring in just 13.9% of calls.
Panjiva's analysis highlights industries that are more likely to be exposed to inflation and supply chain concerns by looking at which companies are discussing these topics the most. Consumer discretionary goods such as apparel and leisure products showed the largest year-over-year change in mentions of inflation, up 192.5% and 182.4%, respectively, to 75.0% and 94.1% of calls in the fourth quarter. Talk of supply chains remained high in the textiles, apparel and luxury goods industry, increasing to 87.5% of calls in the fourth quarter of 2021 from 76.9% of calls in the equivalent quarter in 2020; in leisure goods, there was a slight decrease to 94.1% of calls from 94.4% of calls. These sectors import products with lower margins that require cost competitiveness to gain and hold market share, making them more supply chain-focused than other segments.
Some of the largest growth in supply chain mentions came from the healthcare equipment industry, up from 59.1% of calls in the fourth quarter of 2020 to 100.0% of calls in the fourth quarter of 2021. This is indicative of an industry facing waning demand for pandemic-related products, as well as chip shortage issues affecting new products. Other industries have frequently discussed inflation in previous quarters but showed notable growth in supply chain talk. Mentions increased from 76.5% in the fourth quarter of 2020 to 100.0% in the fourth quarter of 2021 in paper and forestry products, and from 47.4% to 73.9% of calls in construction materials over the same period.
Comparing the imports of these industries to the increase in inflation can also differentiate sectors. Industries with high increases in inflation mentions and high imports, such as apparel and leisure products, are likely just now experiencing the wave of inflation. The fact that imports are high may mean that increased supply could mitigate some of the recent price rises.
On the other hand, industries with little change in inflation mentions (often due to levels already being high) and static or declining imports, such as container and packaging and construction materials, indicate that they may have more persistent inflation, or that individual companies are having challenges bringing in — or even finding — additional goods.
Eric Oak is a researcher at Panjiva, a business line of S&P Global Market Intelligence, a division of S&P Global Inc. This content does not constitute investment advice, and the views and opinions expressed in this piece are those of the author and do not necessarily represent the views of S&P Global Market Intelligence. Links are current at the time of publication. S&P Global Market Intelligence is not responsible if those links are unavailable later.
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