Sky-high prices are spooking S&P 500 companies, with inflation mentions hitting a 10-year high in quarterly earnings calls

• The number of S&P 500 companies mentioning inflation in earnings calls rose to its highest level in 10 years in the Q3 season.
• US inflation shot up to a 31-year high as the economy reopened and supply chains struggled to meet demand.

The number of S&P 500 companies mentioning inflation on their earnings calls rose to its highest in 10 years in the third quarter, new data has shown, as executives fret about the effect of rising prices on their businesses.

In third-quarter earnings season so far, 285 companies have cited the term "inflation" during calls, according to financial data company FactSet. That's the highest tally since 2010 - and there are still around 40 S&P 500 companies yet to report.

Inflation in the US rose to 6.2% year-on-year in October, data showed Wednesday, its highest level since 1990. The surge was mainly driven by soaring energy prices, with food and used car prices also rising fast.

Prices have risen sharply in advanced economies as governments have lifted coronavirus restrictions and demand has surged. Supply chains have struggled to keep up, and energy prices have jumped.

Concerns about inflation are naturally stronger for businesses that are focused on goods and raw materials rather than on delivering services.

Just shy of 90% of companies in the materials sector cited inflation during third-quarter earnings calls, FactSet's data showed, followed by 88% of consumer staples firms and 86% of energy companies.

Only 30% of communications services companies mentioned the term, compared with 34% of information technology companies and 56% of healthcare firms.

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Worryingly, there are signs that inflation is set to eat away at companies' profits in the last three months of the year after a solid set of earnings in the third quarter.

The estimated net profit margin for the S&P 500 in the fourth quarter is 11.8%, down from 12.9% in the third quarter.

Yet there are reasons to be cheerful. An average profit margin of 11.8% is still relatively strong, and investors have so far shrugged off the run-up in inflation to keep the S&P 500 trading around record highs.

"A combination of weak consumer sentiment and higher inflation is somehow not weighing on stocks: US and European equities keep making new records," said Neil Wilson, chief market analyst at London-based trading platform Markets.com.

"Ultimately, the market remains fairly comfortable with fundamentals as earnings growth has been better than expected, as companies seem broadly able to maintain margins by passing on their higher costs to consumers."