Beware of Inflationary Profits
Beware of Inflationary Profits
Manhattan Beach, California - February 2, 2022 - HARRIS & ASSOCIATES, A Registered Investment Advisor, declares 2021 extraordinary profits to be inflationary!
In business we all want higher profits. The remainder from revenue after overhead and the costs of doing business should be positive and the more the better. Profit is money made. It’s a good thing, right?
But in the fourth quarter and the year 2021, profits were not only good, they were over the top. Some might conclude they were despicable. “Fourth quarter earnings for the S&P 500 are expected to be up 22.4% according to Refinitiv. … [2021] overall earnings will be up approximately 49%.”1
Put December’s 7% inflation figure in the recipe, and it makes you wonder if such profits may be a major component of current inflation.
Here’s the perfect storm. Demand has been unusually strong, while supplies were down. Companies large and small were worried about staying in business. They faced challenges on every front from raw materials, transportation, and labor to market dislocations and pivoting to on-line sales and service. When they raised prices in an attempt to stay in business, buyers were more than willing to pay and often competed to be served!
In 2022 such profit levels are likely unsustainable. We should expect “reversion to the mean,” or lower profits. More normal profit levels would still be good. Estimates are for quarterly profits in 2022 fall to the high single-digits early or perhaps get as high as 14.3% in Q4, according to the article cited above.
So, it’s important to see the economy as a whole. While some of us may be struggling with higher prices, a large portion of the national economy has more than enough money to pay. HARRIS & ASSOCIATES helps individuals and companies plan and meet their income and spending needs.
For additional information, please contact: Jennifer Pangelinan
505 N. Sepulveda Blvd., Suite 5
Manhattan Beach, CA 90266-6743
Phone (310) 318-3700 Fax (310) 318-3766
Toll Free 888-50-INVEST (888) 504-6837
Website: www.harrisadvisory.com
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