Yahoo Finance's Brian Cheung and Rick Newman break down the implications of the highest inflation in 31 years in America.

Video Transcript

JULIE HYMAN: If one of the big themes of the week is this breakup of large companies or reforming of large companies, the other probably bigger one has to be inflation. And what we've been hearing from so many companies about rising prices, couple that with the hotter-than-expected CPI print on Wednesday, we have some economists that are raising their forecast for inflation going into next year. And you have a president who is now addressing inflation, even as he still has a choice to make about who's going to be the next chair of the Federal Reserve, whether it's going to remain Jay Powell or not.

There's a lot going on when it comes to inflation. And so we needed a little extra help to talk about that this morning. Our Brian Cheung and Rick Newman are here with us to talk about it. Brian, I want to start with you, because you've been looking through all of the company statements here. Companies, by and large, have been performing better than one have thought, would have thought through this inflation period, because they've been raising prices.

BRIAN CHEUNG: They have. And the big interesting story here is that, obviously, when we talk about the T word or transitory, it was largely coined by those policymakers at the Federal Reserve kind of looking at the macro picture, expecting a lot of these inflationary issues to at some point abate as the supply chain loosens up. Hasn't happened as fast as maybe some had hoped. But it's actually corporate executives that are highlighting this in the earnings season that we just saw reported. And when you take a look at a number of different categories, consider the different types of industries that are talking about this.

I want to show you a one quote from a Boot Barn. It's a retail chain that sells, obviously, boots. And their CEO James Conroy had said on their earnings call, quote, "candidly, now after 32 consecutive weeks of this business, it's hard to say that it's transitory," referring to the demand for boots, "and the growth has been so broad-based that it's kind of exhilarating, to be honest." Then, obviously, this is pointing to the view at least that maybe he's on team permanent if you're talking about drawing the battle lines here.

But then on the other side of the coin, consider what we heard from burgers. Red Robin was talking about the idea of transitory on their call as well. They incurred about $3.1 million in costs associated with hiring.

But look at this quote from Paul Murphy, their CEO. Quote, "We've seen that turnover has actually begun to slow down also as we came out of the third quarter into the fourth quarter. So that's obviously helping our staffing efforts also." So it's interesting to see that the labor costs that have been pushing those transitory costs up, at least in Red Robin's view, should remain transitory as well. They're already starting to see some of that turnover start to settle.

But look, at the end of the day, I think the Hilton CEO really said it best. It's really about margin. Inflation, whether or not it's transitory or not, allows companies to have more pricing power. That allows them to have more margins, which is a big reason why they also had those estimate-beating earnings in the season as well.

JULIE HYMAN: Brian, thanks for sharing a picture of your shiny new cowboy boots. Rick, over to you here. Isn't the new Build Back Better Plan, isn't that inflationary?

RICK NEWMAN: Who knows? I mean, it's not in-- it's not in effect yet. So the idea that this thing itself is causing inflation honestly makes no sense because it's not here yet. And, by the way, it may never arrive. I'm losing faith that Democrats can actually pass this by the end of the year.

What might be inflationary, Republicans are claiming that the Biden rescue plan from earlier this year, Congress passed that in March, that that has been contributing to inflation. I suppose there's some truth to that. But the logic is a little skewed there because if it contributed to inflation, that would be because it put money in people's pockets, which gave them money to spend on stuff that is scarce right now, the goods that are scarce. So people are bidding up the price of these goods because they have a little bit of extra money.

In a way, that's what a fiscal stimulus plan is supposed to do. It's supposed to give people extra money. So this is definitely a political problem for Biden. But I think the evidence is very thin that some kind of Biden policy is actually responsible for inflation.

I mean, we know what's going on here. Semiconductor shortage, Biden didn't cause that. Strong shift to toward purchases of goods away from services because of COVID, Biden didn't cause that, and so on. But it is a fact of life in politics here in the United States that the president is going to get blamed for it. And Biden is getting blamed for it.

EMILY MCCORMICK: Brian, I want to go back to you on this corporate angle and what companies have been saying about inflation here, because just to point out a stat from Bank of America earlier this week, Savita Subramanian over at that firm saying that inflation mentions reached a record high, growing by 850% year-on-year in this quarter's company earnings calls. But when we think about the companies that are calling inflation transitory versus longer lasting, what does that distinction actually mean for investors in terms of how they should be thinking about these companies' margins going forward, whether they're categorizing it as something that's going to be fleeting or longer lasting?

BRIAN CHEUNG: Yeah, and this is really the big challenge, is that even if you look at the Merriam-Webster definition of the word transitory, there's really no time duration to it. It's not like, well, if it's 12 or 18 months, it can still be transitory. Once it hits two years, it's no longer transitory, right? And I think companies are trying to figure out where is the line for defining something as transitory or not.

But again, at the end of the day, I think a lot of these companies might be looking at the price raises that they've already put in place. Consider, for example, Chipotle raising the menu prices on their burritos or a Polaris raising the prices on their snowmobiles. Whether that's because of labor costs or whether or not that's because of higher commodity prices is really idiosyncratic to every industry.

But at the end of the day, the story is still the same. All these companies have the ability to raise prices. Now, the question with regards to transitory or permanent is are those price increases going to happen at the same rate over a longer period of time? Is that longer period of time one year, two years, three years? That's going to be the question.

When you take a look at Boot Barn, for example, they say that demand really has nothing to do with the supply chain issues. People just want to buy more boots. They have more money to do it. Whether or not that remains the case in the years to come is definitely going to be key to transitory versus permanent.

RICK NEWMAN: This definitional problem is what tripped Biden up. He said over the summer, he used the word "transitory and temporary," but nobody knows what it means. If you're a voter, you think, well, that means a couple of months.

And what transitory, temporary probably means here is 6 to 9 to 12 months. Permanent would be three to four to five years. So I think for Biden, as a political problem, to get ahead of this if he can, he needs to tell people what to expect. And if there's good reason to think inflation is going to tame by sometime in early or mid-2022, I think he needs to get out there and explain how that's going to happen and sort of control the expectations at this point, which he did not do over the summer.

JULIE HYMAN: And, as always, there is the tension between what the Fed watches, which excludes food and energy costs, and what all of us are paying on a regular basis and how that's going to affect consumer confidence, et cetera, even as we could get a new Fed chair or not. We don't know. We're waiting for that news. Brian is going to bring us that when it happens.

In the meantime, thanks so much, guys. Appreciate it. Have a great weekend.