(Bloomberg) — The Federal Reserve may be downplaying the risk of lingering inflation, but those with arguably the best vantage point — the companies themselves — are taking a less optimistic view of rising prices.

Just last week, Conagra Brands Inc. and PepsiCo Inc. signaled that higher input costs will be more than a blip. Instead, they expect everything from raw ingredients to labor to remain substantially more expensive in coming months.

“I’m not going to assume it’s going to be transitory,” PepsiCo Chief Financial Officer Hugh Johnston in an interview on Bloomberg TV on July 13. “It’s going to be with us through the better part of next year.”

If these forecasts are accurate, equity investors will eventually have to reckon with a sustained inflationary environment. They’ve been complacent so far, which has contributed to a rally in technology stocks and other groups with higher valuations that do well when Treasury yields fall. But that can change quickly if inflation remains elevated and yields climb, according to Michael Darda, chief economist and market strategist at MKM in Stamford, Connecticut.

“We see risk building in these sectors which would be vulnerable to a reversal in real rates or a rise in inflation expectations,” he wrote in a research note on July 14.

Soothing Markets

Reassurances from Fed Chair Jerome Powell that rising costs remain manageable helped soothe markets last week, particularly after a July 13 report showed the consumer price index rose the most since 2008 last month.

The yield on 10-year Treasuries tumbled from roughly 1.42% on July 13 to below 1.30% on July 16. The S&P 500 Index slid 1% but remained within spitting distance of the record high reached earlier this month. And megacap technology stocks like Apple Inc. and Microsoft Corp. extended their recent rallies despite the broader decline in equities.

Meanwhile, inflation and the ability of companies to pass on costs to customers has emerged as one of the biggest themes this earnings season. The word inflation was mentioned on 87% of the earnings conference calls by S&P 500 companies tracked by Bloomberg this month, compared with 33% in the same period a year ago.

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On Conagra’s July 13 call, inflation was mentioned 49 times. The maker of Vlasic pickles and Slim Jim snacks saw its shares sink after it cut its profit forecast for the current fiscal year because it expects higher input costs to weigh on margins. Two analysts reduced their ratings on the stock, which fell 3.5%, its biggest weekly decline in a month.

PepsiCo fared better, as investors cheered its profit and revenue growth forecasts despite the inflation warnings. Johnston, the company’s CFO, said customers are willing to pay more for its products, which helps offset higher input costs. The stock rallied 4.2% for its best week since March, and it closed at a record on Friday.

Banks Are Alright

Of course, there are plenty of executives that think fears of runaway inflation are overblown. On JPMorgan Chase & Co.’s earnings call last week, Chief Executive Officer Jamie Dimon told analysts that inflation may be worse than the Fed anticipates but “it won’t make any difference” if jobs are plentiful and growth remains strong. Meanwhile, Goldman Sachs Group chief David Solomon said he expects the pressures from inflation to be transitory and that “any resulting risks could be adequately managed.” The KBW Bank Index fell 2.4% on the week, the biggest decline in a month.

That said, these more optimistic views aren’t particularly surprising since financial firms are expected to do well if inflation spikes.

“Some level of inflation is absolutely absorbable and potentially, to the extent there’s higher interest rates, would be positive” for banks, said JMP Securities analyst Devin Ryan.

The ability to counteract the effects of inflation will likely be at the top of investors’ minds this week when Chipotle Mexican Grill Inc. and Coca-Cola Co. report earnings.

“The economy was very strong in the second quarter, so I expect most companies will be able to beat on the bottom line if not on the top line as well,” said Bill Stone, chief investment officer at Glenview Trust Co. “It’s going to be all about whether they can pass along price increases.”

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