Is Pepsi’s 17% Price Increase A Sign That Inflation Could Last Longer Than The Fed Thinks?

PepsiCo’s sales volumes were down 2 percent in the third quarter but its profits grew by 20 percent thanks to its 17 percent price increase on its soft drinks and snacks. The better-than-expected results helped push PepsiCo stock more than 4 percent higher in trading on Wednesday — a bright spot for Wall Street in the gloom of five straight days of stock market losses.

The PepsiCo earnings results came amid fears that high inflation — especially for food and other staples, would lead consumers to cut back significantly on purchases.

The government reported on Oct. 13 that the headline consumer price index (CPI) — the index that measures consumer goods and services including food, energy and apparel — rose at a higher-than-expected annual pace of 8.2 percent in September.

Grocery prices rose higher — 13 percent over the last 12 months, according to an Oct. 13 report from the Bureau of Labor Statistics.

PepsiCo’s price increase doesn’t seem to be deterring customers, who consider PepsiCo brands like Frito-Lay and Cheetos an affordable treat, PepsiCo said.

In the third quarter, consumers were “still very healthy in terms of our particular categories,” PepsiCo Chief Financial Officer Hugh Johnston said Wednesday during a conference call with investors. “I’m not sure that’s true broadly with housing and other big-ticket purchases.”

PepsiCo is one of the first big companies to report earnings each quarter, so investors pay close attention to its finances and look for clues about how other companies will do, New York Times reported.

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“Our brands are being stretched to higher price points, and consumers are following us,” PepsiCo CEO Ramon Laguarta said on a call with analysts.

Federal Reserve Chair Jerome Powell warned in August that the Fed is determined to fight inflation with interest rate hikes and it will likely cause pain for Americans in the form of job losses and a weaker economy.

Economic forecaster Peter Schiff, founder of Euro Pacific Asset Management, tweeted that PepsiCo’s 17-percent price hikes are likely a more accurate reflection “of the true annual rise in the cost of living” than the government’s official estimate.

“#Pepsi exposed the fraud of the #CPI by revealing YoY price hikes of 17%. That’s double the government’s official estimate. 17% likely represents a much better indication of the true annual rise in the cost of living than the 8% CPI gain. The #Fed’s gonna need a bigger rate hike!” Schiff wrote.

Twitter users mostly agreed with Schiff, but with reservations.

“17% does make more sense, but you know they aren’t using the same measurement scale,”
@CherryEmpress21 replied.

Here are more responses to Schiff’s tweet:

Photos, right to left: Atlanta Federal Reserve Bank President Raphael Bostic speaks during a webinar sponsored by the 12 regional Fed banks, April 13, 2021. (AP Photo) / Pepsi (Mike Mozart) https://www.flickr.com/photos/jeepersmedia/
https://creativecommons.org/licenses/by/2.0/
Federal Reserve Chair Jerome Powell, Sept. 21, 2022n. (AP Photo/Jacquelyn Martin)