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How companies are mitigating inflation

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Yahoo Finance’s Alexis Christoforous and Brian Cheung discuss how companies are cutting costs amid inflation.

Video Transcript

ALEXIS CHRISTOFOROUS: Brian, I know you have a story that moved on our site earlier today about inflation. You made that the case for inflation already being here, whether you look at food prices or raw material costs. And I guess the question then becomes, if it's already here, how high is it going to go? And how long is it going to last?

BRIAN CHEUNG: Yeah, absolutely a valid question that we're getting answers to from the slew of earnings calls that have been coming in this quarter. You could see it in a wide ranging variety of industries when it comes to Wingstop, for example. 27% year over year increase in the price of bone-in wings-- that creates pressure on the company to want to raise prices.

But they have a different inflation hedging strategy, if you will. For them, it's using different cuts of chicken. They've been trying to pilot, for example, using thighs at some of the restaurants, although don't necessarily expect them to change their name from Wingstop to Thighstop, at least for right now.

And then, on the other side of things, you look at more hard materials, like resin, for example. The price of that has gone up by 8%. The CEO of Clorox saying to Yahoo Finance actually last week that that also hasn't spurred them to immediately raise prices. They have another mitigation strategy, which would be simply to try to increase cost effectiveness reduce costs so that your margins can be the same.

Now for the Fed, this is all a good thing. And in fact, you see the likes of Wingstop management saying, even the price pressures on chicken wings are likely to be transient. That means that they're echoing what the Fed is saying and saying inflation is not going to be a permanent fixture of the post-crisis economy, that it's just going to be a little blip up for the time being. That could mean that prices are not going to spiral out of control, as maybe some would worry. And that if inflation does happen, it should be pretty under control and well maintained, as long as the Fed can keep an eye on that.

ALEXIS CHRISTOFOROUS: All right, I'm not so sure the market is believing that just quite yet. But thanks for laying it out for us, Brian Cheung.