Following the January CPI Shock, Walmart Also Warns of 'Persistent Inflation'

Walmart CEO "Inflation Decline Slope Eases"

U.S. retail giant Walmart has warned that inflation is stronger than expected. Last month’s inflation rate exceeded market forecasts, and Walmart, a bellwether for the U.S. retail sector, has revised its inflation outlook, raising concerns that achieving the 2% inflation target may be more challenging than anticipated.

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Doug McMillon, Walmart’s CEO, announced on the 20th (local time) the company’s Q4 results (November last year to January this year), stating that while the overall price increase rate of Walmart products has slowed, "the slope of inflation decline has eased" during this period.

This differs somewhat from McMillon’s remarks when he reported earnings in November last year. At that time, he anticipated that by early 2024, deflation (a slowdown in price increases) might need to be managed. Although product prices fell as expected at the end of last year, the decline was not as steep as forecasted, according to McMillon’s explanation on this day.

He noted that prices for groceries and consumables rose compared to a year ago. Prices for eggs, apples, and snacks fell, but asparagus and blackberries increased, and prices for paper products and cleaning supplies also jumped.

Walmart’s revised inflation assessment is particularly notable as it comes amid confirmation that U.S. inflation rates have been stronger than expected recently.

The U.S. Consumer Price Index (CPI) for January rose 0.3% month-over-month and 3.1% year-over-year, surpassing market expectations of 0.2% and 2.9%, respectively. The Producer Price Index (PPI), considered a leading indicator for CPI, also increased by 0.3% month-over-month and 0.9% year-over-year in the same month, exceeding market forecasts of 0.1% and 0.6%, respectively.

As the pace of inflation decline falls short of expectations, the market is shifting its forecast for the Federal Reserve’s (Fed) interest rate cut from March to June. Some are even beginning to discuss the possibility of rate hikes. Larry Summers, former U.S. Treasury Secretary, said in a Bloomberg TV interview on the 16th that due to persistent inflationary pressures, "there is a meaningful possibility that the Fed’s next move will be a rate increase rather than a cut."

Meanwhile, Walmart announced alongside its Q4 earnings that it acquired smart TV maker Vizio for $2.3 billion. Vizio is a U.S. electronics company producing smart TVs and soundbars. Walmart expects to strengthen its advertising business through Vizio’s TV operating system, SmartCast, with this acquisition.

Walmart’s Q4 sales last year rose 5.6% year-over-year to $172 billion, while net income fell 12.4% to $5.5 billion during the same period. Both sales and net income exceeded market expectations by $1 billion each. However, Walmart projected a sales growth rate of 3-4% for the next 12 months, below the market estimate of 4.5%.