According to Fundstrat’s Tom Lee, runaway inflation may not last much longer.
“Last week, we got some data that I think really shows that inflation could come down a lot faster than expected,” the strategist told CNBC earlier this month.
Lee notes the drop in gas prices. It also looks at indicators that show signs of slowing inflation.
“THE [Institute for Supply Management Index] prices collapsed for the month of August, and it shows [Producer Price Index] potentially going to almost zero in a few months,” he says. “And I think the third thing that’s quite encouraging is if you look at his lineup [Consumer Price Index]42% of the basket is actually now in full deflation.”
The headline number is still troubling. In July, US consumer prices rose 8.5% from a year ago.
But Lee remains optimistic.
“I think there’s still one positive surprise, and that’s the fact that inflation could cool faster, and history shows that once it starts to break, it falls very quickly.”
If you share this sentiment, there’s one area you might want to look into: restaurants.
A broken domain
The COVID-19 pandemic has sparked one of the most challenging operating environments for the restaurant business in history. During the initial outbreak, restaurants in many areas were ordered to either close completely or only offer takeout. And even as the economy reopened, some restaurants had to operate at reduced capacity.
Obviously, not all restaurants survived the pandemic. However, those who did still had to face another challenge – explosive inflation.
The wholesale cost of food has risen significantly. Wages have also increased. Many restaurants have raised their prices to compensate for higher operating costs. But consumers don’t have an unlimited budget.
According to a CNBC survey earlier this year, 53% of Americans say they have cut back on food spending because of rising prices.
The good news? There are signs that inflationary pressure is easing for the restaurant industry.
Making a comeback
When restaurant chain Wingstop ( WING ) reported second-quarter earnings on July 28, it reported a decline in food, beverage and packaging costs, driven primarily by an 18.8% year-over-year decline in chicken wing costs. with bones.
“We are in a unique position for the second half of 2022 where we benefit from substantial feather deflation, have a proven playbook, along with sales-driving drivers that give us confidence in our ability to deliver on our 2022 outlook,” said Wingstop President and CEO Michael Skipworth.
Investors liked the news. On the day Wingstop reported earnings, its shares jumped 20%.
And that momentum has continued as Wingstop shares are currently trading at $134.86 each.
Wingstop is not alone. Peers such as Cracker Barrel Old Country Store ( CBRL ), BJ’s Restaurants ( BJRI ) and Jack in the Box ( JACK ) have all rallied after Wingstop’s second-quarter earnings release.
If this “substantial deflation” continues, restaurant stocks may see better days ahead.
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This article provides information only and should not be construed as advice. Provided without warranty of any kind.