The head of the world’s largest retailer used the D word on an earnings call: deflation.
“In the US, we could be dealing with a period of deflation in the coming months,” Walmart Chief Executive Officer Doug McMillon told analysts on an earnings call Thursday.
Granted, Walmart’s US grocery and general merchandise prices are higher than they were a year ago, and have risen sharply on a two-year basis. But McMillan said the increase is slowing and may even begin to reverse.
If that happens, he said, Walmart shoppers could start to see deflation — or price reductions — in dry groceries and consumables in the coming months. “Over the last few weeks or months, general business prices have fallen a little more sharply,” he said.
Even though overall prices did not fall on an annual basis, McMillan’s comments underscore a slowdown in U.S. inflation after the Federal Reserve raised interest rates. This is a stark change from decades of high inflation that has hit shoppers in the wake of the pandemic.
McMillan, who tracks U.S. shoppers closely on a daily basis, will now have to convince Wall Street that Walmart can continue to grow sales and market share despite low inflation. He argued that potential deflation in basic goods would free up shoppers’ budgets to spend more on general items – a win for Walmart because those products tend to be more profitable.
Will the retailer lose high-income shoppers who flock to the retailer when inflation increases?
“It’s not working out that way,” GlobalData analyst Neil Saunders said in a research note Thursday. “Americans are under economic pressure and are still looking to stretch their dollars further – and Walmart is where many have turned.”
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Source: fortune.com
