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The Inflation Tax Hits Walmart


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We’ve talked a lot over the past few months about the concept of an inflation tax. The idea is that high prices of necessities like food and energy can draw spending away from other parts of the economy.

This dynamic is now expected to take a big bite out of Walmart’s earnings. The company said on Monday that it expects adjusted earnings per share for the second quarter to decline by around eight and nine percent, a big revision from its earlier guidance for profits to be flat to up slightly. It said it expects full year earnings to drop by between 11 and 13 percent, down from the previous forecast of a one percent decline.


The company put the blame squarely on inflation.

“The increasing levels of food and fuel inflation are affecting how customers spend, and while we’ve made good progress clearing hardline categories, apparel in Walmart U.S. is requiring more markdown dollars,” Walmart chief executive Doug McMillon said in a news release.

In other words, the high prices of food are affecting customers’ ability to spend on general merchandise, forcing Walmart to cut the prices of non-food items. So, inflation in food is triggering deflation in apparel.:snip:

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