New Zealand firms warned inflation still 'hasn't come through' in economic statistics as large US retailer shares tumble

Large retailers in the US are taking a tumble in share prices, sparking warnings for New Zealand firms the worst of the economic fallout from COVID-19 and the war in Ukraine could still be to come.

Shares for US retail giant Target plummeted 24.88 percent a fortnight ago - its biggest one-day percentage drop since the 'Black Monday' stock market crash in 1987, a day after Walmart warned of similar margin squeezes and saw its stock drop 11.4 percent - also its biggest one-day percentage fall since 1987. 

"All the retailers are reporting earnings at the moment and they disappointed the market," explained Stephanie Batchelor, a senior investment analyst at New Zealand firm Milford Asset Management.

"There are a couple of things going on. Firstly, on the positive side, revenue growth actually held up OK so consumers are still spending - the issue was on the margins."

She said large retailers were currently less profitable due to the "usual suspects", including the rising cost of fuel and inflation.

"Also because basic items like food, like fuel are costing so much more because of inflation, consumers aren't spending on discretionary items - they're having to shift that money into those basics."

And it's not just big retailers in the US in the firing line. Batchelor told AM host Ryan Bridge New Zealand chains could soon be impacted.

"In general, the US consumer has actually held up pretty well - similar to the New Zealand consumer - and we're hearing a lot about the impact of inflation. But it hasn't actually come through in the economic statistics, and companies are still actually generating that revenue growth.

"But of course the market's concerned with what happens six, nine, 12 months from now, and we are starting to see consumers draw into those savings.

"There's concern that the current pace of consumption won't be able to continue and, at the same time, you've got those margin headwinds."

New Zealand firms warned inflation still 'hasn't come through' in economic statistics as large US retailer shares tumble
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This week, leading New Zealand economist Brad Olsen declared an economic recession was "somewhat inevitable" for the country.

Experts have predicted that the recession could happen next year. 

The ominous warning came after New Zealand's inflation surged to its highest annual rate since 1990 as the cost of living soars. The 6.9 percent inflation was largely driven by rising rent and construction prices, Statistics NZ data shows.