“We’re paying more for freight than I would like to pay.”

The above quote is not from the manager of a small Mom & Pop store adjusting to the new post-pandemic online reality. It is from Apple CEO Tim Cook during the company’s conference call for the quarter ending June 2021. In other words, the CEO of the largest company in the world is complaining about shipping costs.

Somewhat ironically, the largest package delivery company in the US by revenue, UPS, is dealing with wage increases. CEO Carol Tome had a very honest answer about these types of cost increases:

“Well, we know what happens in an inflationary environment… somebody pays for it. It’s usually the consumer, which means, that price increases get passed along all the way to the end to the consumer until the consumer is out [and says], I’m not going to buy anymore.” As of now, the “consumer continues to buy. So, [that is where] we are in the cycle.”

Along with UPS, the world’s largest asset manager, BlackRock, is also increasing wages, as is Goldman Sachs. According to a July 14th interview with Bloomberg, Blackrock’s CEO, Larry Fink, is increasing base salaries for all staff at the director level and below by 8% in September and believes the current high inflation is more than a transient phenomenon.

Simpson Manufacturing Co., maker of building construction products, is an example of a company currently testing consumers’ willingness to pay higher prices. Company sales were up 22% in North America for the 2nd quarter, primarily from not one but two price increases put into effect in the second quarter alone to offset rising material costs.

We have companies dealing with inflationary pressure in raw materials, transportation, and wages. These examples illustrate why we have written about inflation so frequently in 2021. The CPI number is more than just a statistic for the Fed to review when deciding whether to raise interest rates – it represents an increase in real costs being felt by even the largest companies in the world.

If these companies aren’t already passing the increases along to consumers, they most likely will be soon. Eventually, as Tome stated, the consumer will stop buying and perhaps slow down inflation. The good news is that along with increases in raw materials and other inputs, wage inflation is occurring, allowing the consumer to offset some of the price increases.

The magnitude and duration are unknown, but inflation is already here. Markets tend to be discounting mechanisms and, as of this writing, the US Treasury 10-year yield sits below 1.2%. Perhaps bond investors are looking at the current level of employment in the U.S. being 7 million less people than pre-pandemic and are less sanguine in their outlook for a continued strong recovery and a reflationary environment.  Whether it is a transient phenomenon, as these investors and the Fed suggest, or the start of a longer-term trend will become apparent in the months ahead.