What CEOs and CFOs and are saying about inflation

There’s no “I” in team, but there is an “I” in inflation—and CFOs seem obsessed with talking about it.

Leading up to July, it was clear CFOs were still worried about inflation. In two CFO surveys—one from Deloitte and the other from Duke University and the Federal Reserve Banks of Richmond and Atlanta—inflation was a top concern cited by CFOs during mid-May to early June.

So, how’s July looking? Same old, essentially. At least, that’s what we’ve heard on second-quarter earnings calls to date.

Take PepsiCo. When the beverage giant’s CEO, Ramon Laguarta, was asked for an update on how US consumers were responding to “rising inflationary pressures,” he noted that “in the US, we’re seeing the consumer changing behaviors, basically an acceleration of some of the behaviors we saw in the past,” explaining that the company has “seen a slowdown of the conversion of traffic into purchases” in some channels.

Whether or not that will change in the coming months “all depends on the price of gas,” Laguarta noted on PepsiCo’s July 9 call.

Pump the gas. Predictably, gas prices and inflation were particularly intertwined in comments from airline executives, two of whom focused on the “structural change” they have caused.

On United Airlines’s July 16 earnings call, CEO Scott Kirby said, “The most important structural change in the industry has been the significant inflation and harmonization in nonfuel costs like airport fees, labor, and maintenance.”

“Cost inflation is what is driving fares higher, though fares still remain 13% lower in real terms compared to pre-pandemic,” he continued. “In the quarters ahead, I expect yields to continue returning to reasonable pre-Covid levels that will ultimately allow the industry to earn its cost of capital. The impact of structural changes are just now beginning to be felt.”

There was a similar narrative during Delta Airlines’s July 10 earnings call, when CEO Ed Bastian called high fuel prices “the most powerful catalyst for change in our industry.”

“Coming into the recent fuel spike, most US carriers were already struggling to earn their cost of capital against a backdrop where industry airfares have meaningfully trailed inflation, costs have reset higher, and consumer preferences have evolved,” he explained. “And as we predicted, structural change has accelerated, enabling the industry to recapture this year’s fuel cost inflation at the fastest pace of any recent cycle.”

He added that even with fare increases, “airfares remain 10 to 15 points below overall inflation since Covid. With continued fuel volatility and much of the industry still earning returns below its cost of capital, we believe current revenue momentum should remain sustainable even if fuel prices moderate.”

Stable coins. Other executives seemed relatively unconcerned about any correlation between inflation and changes in consumer behavior—in part because they haven’t seen much as of late.

When Citigroup CFO Gonzalo Luchetti was asked during the bank’s earnings call how rising inflation was impacting consumer credit and consumer behavior, Luchetti stressed that Citi was “seeing a stable credit environment.”

“I know it sounds like a broken record from a few quarters, but the US consumer has been resilient, and you can see that through the spend,” he said.

“Then when you look at the delinquencies and the net credit losses, you can see that across the portfolios, both delinquency and credit losses are down year on year,” he continued. “And when we look at our leading indicators of collections and the usual pockets that you look at when you’re trying to seek for stress, you’re really seeing an environment that is stable.”