Under inflation, some people are eating cheap burgers, while others are buying LV bags

Under inflation, some people are eating cheap burgers, while others are buying LV bags

Consumers around the world seem to be on the verge of collapse. Affected by unprecedented inflationary pressure, consumers now only dare to buy some necessities, such as food, bleach, cheap hamburgers, etc., while the rich are scrambling for LV handbags worth $3,000.

 

Investors are closely watching second-quarter corporate earnings for signs that the economy is heading for a recession. But so far, consumers are sending mixed signals. The economy is softening in countries hardest hit by fuel and food prices. Yet credit card and other data show some people are still splashing out on travel and other high-end pursuits.

 

U.S. consumer confidence fell for the third straight month in July amid persistent concerns about inflation and rising interest rates.

 

Luxury goods group Louis Vuitton saw sales rise 19% in the second quarter, slightly lower than in the first quarter of this year.

 

Payments agent Visa said cross-border transaction volumes surged 40%, reflecting a summer travel boom and consumer resilience.

 

But weak consumer demand hit video game revenue at Xbox maker Microsoft, which reported a 7 percent drop in Xbox-related revenue and forecast a further contraction this quarter. Microchip maker Texas Instruments (TXN.O) is also feeling the effects of weakening consumer demand for personal electronics.

 

Buy! Buy! Buy! But for how long?

 

Consumer goods giants Coca-Cola Co., McDonald's Corp. and Unilever PLC said on Tuesday that even raising prices would have no impact on their sales.

 

Unilever, which owns more than 400 brands including Hellmann’s mayonnaise, Knorr stock cubes and Domestos bleach, raised its full-year sales forecast after raising prices and beating its underlying first-half sales target.

 

McDonald's, which operates nearly 40,000 restaurants worldwide , said its global sales rose nearly 10%, far better than the expected increase of 6.5%.

 

Still, the Chicago-based company said it is considering whether to add more discounted items as soaring inflation, particularly in Europe, is forcing some lower-income consumers to downgrade to cheaper food and buy fewer larger meal plans.

 

Coca-Cola said its global sales volume grew 8% in the second quarter, driven by growth in both developed and emerging markets, while the average selling price rose about 12%.

 

"Coca-Cola's results are a testament to the value of its brand, as consumers are reluctant to buy lower-priced alternatives despite rising prices," said CFRA analyst Garrett Nelson.

 

Is there a recession in the future?

 

Germany-based shoe maker Adidas AG cut its profit target for this year due to a slow recovery in its business in China.

 

General Motors Co. on Tuesday reaffirmed its full-year profit forecast amid expectations of a surge in future demand and said it would cut spending and hiring ahead of a potential recession, but news of a 40% drop in quarterly net profit hit investor confidence and sent its shares lower.

 

The Detroit automaker's net profit decline reflected supply chain disruptions, including a global shortage of semiconductor chips that was most severe in June.

 

Still, GM sees a lot of pent-up demand.

 

GM Chief Financial Officer Anthony Jacobson said: "We believe we have certain advantages in terms of pricing and demand for our products.

 

A base Chevrolet starts at about $31,500, while a high-end GMC Sierra can start as high as $100,000. Most models cost between $50,000 and $70,000.

 

“We are confident that we can make up all (lost) sales in the second half of the year,” he said.


Inflation

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