Evelyn Reynolds

Executives at some of America’s largest companies have said that consumers feel the pinch of higher prices.
Their remarks come as sticky inflation poses a challenge for Main Street, Wall Street and the Federal Reserve.

McDonald’s employee giving change to a customer.
Jeffrey Greenberg | UIG | Getty Images

Some of America’s best-known corporations are saying their consumers are being pinched by inflation as prices continue rising.
Inflation has dominated corporate America’s discourse over the past three years following the pandemic-induced easing of monetary policy and trillions of dollars in Covid relief. Though the pace of price growth has cooled since the Federal Reserve began raising interest rates in early 2022, consumers are still feeling the squeeze — and often tightening purse strings — as costs continue climbing.

“It is clear that broad-based consumer pressures persist around the world,” McDonald’s CEO Chris Kempczinski said on the fast-food chain’s earnings call early Tuesday. “Consumers continue to be even more discriminating with every dollar that they spend as they faced elevated prices in their day-to-day spending.”
Sticky inflation has created a dark cloud over how everyday Americans perceive the health of the economy. Consumer confidence in April hit its lowest level since mid-2022 as high prices remained top of mind, according to data released Tuesday by the Conference Board.
Worker pay has continued rising, as evidenced by first-quarter employment cost statistics released Tuesday. But so, too, have the prices paid by the typical consumer, biting into the extra income from those higher wages.
To be sure, the rate of inflation has fallen significantly. The consumer price index — a broad basket of goods and services — rose at an annual rate of 3.5% in March compared with the same month a year ago.
That’s far below the 40-year high of 9.1% seen in mid-2022 but remains above the 2% goal set by the Fed, whose officials have pointed to stubborn inflation as the reason for keeping interest rates higher.

And that tenacious 3.5% annual growth is souring economic sentiment: Even after a period of runaway inflation, prices don’t actually fall. That’s a problem for McDonald’s and a host of other firms serving customers who are feeling sticker shock.

‘Under pressure’

At McDonald’s, that was evidenced by same-store sales growth coming in slightly below Wall Street expectations. Kempczinski said that the Chicago-based company must be “laser-focused” on affordability to bring in diners as prices push away low-income consumers.
Executives at 3M, the maker of Scotch tape and Post-it Notes that also reported Tuesday, told analysts it’s seeing “continued softness in consumer discretionary spend.” While 3M earnings and revenue topped expectations in the first quarter, management said it anticipates consumer spending this year to be “muted.”
Newell Brands CEO Chris Peterson on April 26 joined the chorus of executives pointing to inflation as the main force bedeviling their businesses. Though the owner of Coleman and Rubbermaid products exceeded analyst forecasts for the first three months of the year, the company issued soft guidance for current-quarter earnings and said revenue is likely to decline.
“The categories we compete in remain under pressure with consumers continuing to carefully manage their discretionary spend as the cumulative impact of inflation on food, energy and housing cost has outpaced wage growth,” Peterson said.
But not all consumer-facing companies are feeling the heat.
Colgate-Palmolive CEO Noel Wallace said on April 26 that volume growth has largely returned as “inflation became more benign and as pricing started to stabilize.”
At Coca-Cola, management has seen a greater emphasis on value, saying the purchasing power of lower-income consumers has taken a hit. Still, executives said on the soft drink maker’s earnings call Tuesday morning that the American consumer, across income strata, “remains in good shape.”
— CNBC’s Robert Hum and Amelia Lucas contributed to this report.

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The employment cost index, which tracks worker salaries and benefits, added 1.2% in the first quarter, the Labor Department reported Tuesday.
The increase added to concerns that a string of 11 Fed interest rate hikes has not done enough to ease price pressures.

Grace Cary | Moment | Getty Images

Employee compensation costs jumped more than expected to start the year, providing another danger sign about persistent inflation.
The employment cost index, which measures worker salaries and benefits, gained 1.2% in the first quarter, the Labor Department reported Tuesday. That was higher than 0.9% in the fourth quarter of 2023 and above the Dow Jones consensus estimate for a 1% increase.

In the larger picture, the increase added to concerns that a string of 11 Fed interest rate hikes has not done enough to ease price pressures and likely helps keep the central bank on hold before it can start easing monetary policy.
The Fed watches the ECI as a significant measure of underlying inflation pressures.
The rate-setting Federal Open Market Committee begins its two-day meeting Tuesday. Markets have priced in virtually no chance that the FOMC will change the target for its overnight borrowing rate from the current range of 5.25%-5.5%.
Following the ECI index release, traders changed their outlook on the first cut coming in September, moving the odds to about a coin-flip, according to the CME Group’s FedWatch measure of fed funds futures pricing. The implied probability of no cuts this year also rose to about 23%, after being near zero just a month ago.
On a year-over-year basis, compensation costs for civilian workers increased 4.2%, still above a level the Fed feels is consistent with its 2% inflation goal, though down from 4.8% a year ago. Wages and salaries rose 4.4% while benefits costs increased 3.7%.
State and local government workers saw their compensation costs rise 4.8%, down just narrowly from the same period in 2023. The bigger increase likely was attributable to the high level of that group belonging to unions, which saw compensation costs increase 5.3%, compared to just a 3.9% gain for nonunion workers. More

Headline euro zone inflation was 2.4%, steady on the previous month and in-line with analyst expectations.
The core rate was slightly above forecasts, cooling to 2.7% from 2.9%.
The euro zone economy meanwhile rebounded to 0.3% growth, as a revised figure showed the bloc entered a recession in the second half of last year.

People walking in the streets of Montmartre, Paris, France, on April 23, 2024. 
Nurphoto | Nurphoto | Getty Images

Price rises in the euro area held steady at 2.4% in April, while the economy returned to growth in the first quarter, according to flash figures published Tuesday.
Headline inflation of 2.4% was in line with the forecast of economists polled by Reuters. On a monthly basis, inflation was 0.6%.

It is the seventh straight month the headline rate has been below 3%, despite a slight rebound in the rate in December due to energy prices.
Core inflation, excluding energy, food, alcohol and tobacco, dipped to 2.7% from 2.9% in March. The impact of a lower year-on-year price of energy continued to moderate, coming in at -0.6% versus -1.8% in March.
Price increases in services, a key watcher for the European Central Bank, cooled to 3.7% from 4%.
Gross domestic product meanwhile rose by 0.3% over the first three months of the year, slightly better than consensus economist expectations. GDP for the fourth quarter of 2023 was revised from no growth to a 0.1% contraction, which means that the euro zone was in a technical recession in the second half of last year.
Market expectation is mounting for the ECB to start cutting interest rates at its next monetary policy meeting on June 6. Money market pricing currently indicates a nearly 70% probability of a June trim, according to LSEG data, with even higher bets on a cut in July or September.

A host of voting ECB members told CNBC earlier this month that they are anticipating an interest rate reduction in June, citing the need to prevent an excessive slowdown in the euro zone economy. They also flagged risks from oil prices and volatility in the Middle East.
The fact that services inflation fell for the first time in six months, serves as a “more important development that increases our confidence that the ECB will lower policy rates in June,” Gerardo Martinez, Europe economist at BNP Paribas, said in emailed comments.
However, Martinez noted the slightly lower-than-expected fall in core inflation and volatility in some areas of services that had increased the inflation rates in France and Italy.
“With the path from here likely to be bumpy and growth data showing that the eurozone economy is gathering momentum, we think the path beyond June remains more uncertain and we continue to expect a gradual and cautious (quarterly) pace of easing from the ECB,” Martinez said.
Jane Foley, head of FX strategy at Rabobank, told CNBC by email that growth figures were encouraging, and that firmer than expected core inflation “may suggest less urgent need for more accommodative monetary policy from the ECB.” This supported the euro on the back of the release, she said.
“While a June rate cut is considered by many market participants to be almost a done deal, there is still plenty room for debate about the pace of ECB policy moves later in the year,” Foley added. More

High U.S. interest rates traditionally spell bad news for emerging markets, making their debts — which are often priced in U.S. dollars — more expensive.
They can also trigger capital outflows, as investors opt for better returns in the U.S., and can cause much tighter financial conditions.

International Monetary Fund (IMF) Managing Director Kristalina Georgieva speaks during a briefing on the Global Policy Agenda at IMF headquarters during the IMF/World Bank Spring Meetings in Washington, DC on April 18, 2024.
Mandel Ngan | Afp | Getty Images

Kristalina Georgieva, the managing director of the International Monetary Fund, played down the prospect of any negative impact from a monetary policy divergence between Europe and the U.S., but said issues could be more acute in emerging markets.
The benchmark rates of most advanced economies soared in recent years, as central banks aimed to tame inflation following the Covid-19 pandemic. These banks are now looking to bring rates back down as economies cool off, although signals in the U.S. suggest that cuts might still be some months away.

A high U.S. interest rate environment is traditionally bad news for emerging markets, as it makes their debts — often priced in U.S. dollars — more expensive. It can also trigger capital outflows, as investors opt for better returns in the U.S., and can cause much tighter financial conditions.
“It is a much more serious issue for countries where the impact of high interest rates in the United States are more profound — in many emerging market economies,” Georgieva told CNBC’s Silvia Amaro in Brussels on Monday.
“We also see some of this in Japan, and there the attention of policymakers, indeed, has to be sharpened to carefully monitor where the volatilities are becoming more significant. In Europe, this is not the case.”

In the euro zone, she said that “we are not too worried about the exchange rate impact,” adding that the IMF’s analysis showed that the 50 basis points difference between the rates of the U.S. Federal Reserve and those of the European Central bank “is likely to lead to miniscule or 0.1 to 0.2% shift in the exchange rate.”
“And that is to say that here [in Europe] this is not a big issue,” she said. More

In early April, reports emerged that The Line project, a planned glass-walled city meant to stretch for 105 miles across the Saudi desert by 2030, would be a length of just 1.5 miles by that time — a reduction of 98.6%.
“For NEOM, the projects, the intended scale is continuing as planned. There is no change in scale,” Saudi Economy Minister Faisal Al Ibrahim told CNBC in Riyadh.

Saudi Arabia’s economy minister rejected recent reports that the kingdom’s $1.5 trillion NEOM megaproject, a futuristic desert development on the Red Sea coast, is scaling back some of its plans.
“All projects are moving full steam ahead,” Faisal Al Ibrahim told CNBC’s Dan Murphy on Monday at the World Economic Forum’s special meeting in Riyadh.

“We set out to do something unprecedented and we’re doing something unprecedented, and we will deliver something that’s unprecedented.”
In early April, reports emerged in Western media outlets that The Line project, a planned glass-walled city meant to stretch for 105 miles across the desert by 2030, would be a length of just 1.5 miles by that time — a reduction of 98.6%. Citing anonymous sources with knowledge of the matter, the initial report by Bloomberg said that the Saudi government’s original plan to have 1.5 million people living in The Line by 2030 was slashed to 300,000.
The purported scaling back of plans, at least in the medium-term, comes amid reported concerns over finances for NEOM, which is part of the kingdom’s broader Vision 2030 initiative to diversify its economy away from oil. Saudi Arabia’s sovereign wealth fund, the Public Investment Fund, has not yet approved NEOM’s budget for 2024, according to Bloomberg’s report.
Al Ibrahim stressed that the projects would be delivered according to plan, but with the qualification that decisions were being made for “optimal economic impact.”
“We see feedback from the market, we see more interest from the investors and we’ll always prioritize to where we can optimize for optimal economic impact,” he said.

“Today the economy in the kingdom is growing faster, but we don’t want to overheat it. We don’t want to deliver these projects at the cost of importing too much against our own interest. We will continue delivering these projects in a manner that meets these priorities, delivers these projects and has the optimal healthy impact for our economy and the … healthy non-oil growth within it.”

NEOM political map of the 500 billion dollar megacity project in Saudi Arabia along the Red Sea coast. Location of the smart and tourist city with autonomous judicial system. English labeling. Vector.
Peterhermesfurian | Istock | Getty Images

Still, the minister emphasized that “for NEOM, the projects, the intended scale is continuing as planned. There is no change in scale.”
“It is a long-term project that’s modular in design,” he said. “The rest of the mega projects are there to be delivered for specific impact in specific sectors.”
Asked what kind of a message the reported timeline and scale changes would send to private investors, Al Ibrahim said that decisions would be made to suit the needs and returns of the projects, and that all the developments within NEOM are seeing growing investor interest.
“Keep in mind that these sectors didn’t exist in the past. They’re being built from scratch. They require some investment and going all in from the government and the sovereign wealth fund,” he said.
“And we’re seeing increased investor interest on all of these projects. These projects will be delivered to their scale and in a manner that in terms of priorities suits the needs of the projects, the returns of these projects, and the economic impact. It’s like minimizing any leakage, minimizing any overheating risks as well.” More