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Despite a decent start for earnings season, Wall Street experts are increasingly warning that corporate profits are likely to take a hit as inflation remains a “headwind” to economic growth and pricing pressures to take a bigger toll on consumers.


Rising costs due to inflation are beginning to impact corporate profit margins and pricing pressures are hitting consumers, Morgan Stanley strategist Michael Wilson warned in a note on Monday, adding that “growth is slowing” while the “risk of recession has increased.”

The firm notes that first-quarter earnings results could be disappointing, with a marked “downtrend” in S&P 500 companies earnings’ revisions in recent weeks as they deal with inflationary pressures, with 73 negative pre-announcements compared to 26 positive, according to Refinitiv data.

What’s more, out of the companies that have reported first-quarter earnings so far, many are warning about the heightened impact from inflation, as pricing pressures affect both margins and consumer demand.

In its earnings call last week, retailer Bed Bath & Beyond admitted that its business “has been impacted by extraordinary macroeconomic factors” including “unprecedented inflation,” which has weighed on consumer confidence.

Restaurant traffic and customer demand “may be more volatile in the near term as consumers face significant cost inflation,” food processing company Lamb Weston warned on its earnings call earlier this month.

Restaurant chain BurgerFi similarly said last week that rising costs have hit margins across the industry, and that it would “have no choice” but to keep raising prices if “pervasive inflationary pressures” persist.