By Caroline Valetkevitch

NEW YORK (Reuters) – U.S. companies have retained strong profit margins through the pandemic because they have cut costs and passed along high prices to customers. It begs the question: Can this continue?

With inflation still strong, the ability for companies to keep margins at record levels is being closely watched by some investors and strategists as third-quarter earnings reports from S&P 500 companies are set to arrive next month.

Much-stronger-than-expected earnings have been a key support for stocks this year even as the coronavirus pandemic has dragged on. The is up about 17% for the year so far.

Given the way companies have been handling costs, profit margins should edge higher in the near term, said Jonathan Golub, chief U.S. equity strategist and head of quantitative research at Credit Suisse (SIX:) Securities in New York.

His comments reflected the fact that “really solid profit margins” have been achieved by companies “doing an excellent job in managing their costs in a challenging environment.”

This won’t last forever. But, will it continue for just a bit longer? Yes.

For the second quarter, the operating profit margin for S&P 500 companies was at an estimated 13.54%, surpassing the first quarter’s 13.02%, which was also a record, according to data from S&P Dow Jones Indices.

Analysts expect S&P 500 earnings to increase 29.5% in the third quarter after a whopping 96% jump in earnings for the second quarter, when year-ago comparisons were much easier, according to IBES data from Refinitiv as of Friday.

According to data, analysts slightly reduced third-quarter earnings estimates in an attempt to reverse the trend.

Due to shortages of raw materials, and unwilling workers due to coronavirus virus pandemic, businesses have seen an increase in their costs.

BofA Securities analysts wrote recently that certain signs indicate that inflation may have become a tailwind instead of a driver. They wrote that companies might have difficulty passing through inflation if they are paired with slower macro data.

A key factor for margins is the spread between costs and the ability of firms to pass those costs on, Morgan Stanley (NYSE:) strategists wrote this week.

The gap between the consumer price index and producer price index “has turned deeply negative as high commodity prices, rising logistical and distribution costs and higher wages are outpacing merchant end prices — a scenario that raises risks for company profits in the next 12 months,” they said.

The recent PPI data suggests that inflation will be high for some time as supply chains are being strained by the COVID-19 pandemic. Some economists have reduced their forecasts for the third quarter’s economic growth.

The August increase in U.S. producer price growth was the largest annual gain for nearly 11 years.

Much will depend on the future.

“In the very short run here, it’s hard to read too much into these numbers,” said Sameer Samana, senior global market strategist at Wells Fargo (NYSE:) Investment Institute in St. Louis.

He said that companies have less to worry about if economic growth and wages slow down. However, it’s difficult to imagine how operating margins can improve.