McDonald’s Faces Crippling Inflation

The stock market is neutral about McDonald’s prospects. Its shares have traded between $217.68 and $271.15 apiece in the past year, and the current price is near $248.

The reason the price has not moved toward the top or bottom of the range is that sales are strong. They rose 11% in the last quarter to $5.7 billion. However, the bottom line eroded, with earnings down 28% to $1.1 billion.

McDonald’s runs on beef, chicken, bread, coffee and soft drinks. It also relies on particularly low costs of labor. Much of the food it sells has been hit by inflation. The union movement that has bedeviled Starbucks and Amazon may drive labor costs higher.

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There is an increasing chance that inflation may be long-lived and could worsen. The Bank for International Settlements stated in its annual report that “The risk of stagflation looms over the global economy as the threat of a new inflation era coincides with a weaker outlook for growth and elevated financial vulnerabilities.”

Note that people often turn to fast food when food prices are high. However, even for these people, inflation could start to price McDonald’s out of the market.

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