Bar soap maker Dove and ice cream Magnum increased prices by more than 4% on average in the last quarter, the biggest jump since 2012, and has indicated that the high prices will continue into the next year. A similar refrain has come from Nestlé SA, Procter & Gamble Co. and Danone SA, whose products dominate supermarket aisles and kitchen cabinets.
“We are at least 12 months away from inflationary pressures,” Unilever CEO Alan Jope said in an interview with Bloomberg Television. “We are in an inflationary environment once in two decades.”
Businesses face a host of supply chain challenges, as well as higher costs for energy, raw materials, packaging and shipping. While most of the consumer goods manufacturers reporting results this week have expressed confidence that they will be able to limit the long-term blow to profitability, that means the pain is passing to consumers, increasing the pressure on them. pockets as Christmas approaches.
US inflation has accelerated rapidly this year to its highest level since 2008. In developed economies, post-pandemic supply and demand imbalances have pushed the rate above 4% for the second time only in the past two decades.
In the UK, the cost of hedging inflation over the next decade rose on Friday to its highest level in 25 years.
The return of pricing power marks a sea change in the global economy and poses a new challenge for central bankers after years of underestimating inflation targets. They are trying to determine whether they should speed up the removal of stimulus measures from economies hampered by the pandemic, or remain adamant because the price spikes are temporary.
“It’s a story repeating itself around the world,” said Jennifer Lee, senior economist at BMO Capital Markets. “It’s just something consumers have to come to terms with right now. ”
Companies usually increase their prices gradually, which is why the onset of an inflationary period usually hurts profitability the most. If they pass on cost increases too quickly, buyers will switch to cheaper competitor products or postpone their purchases. Some are also locked into contracts, creating a delay in households feeling the pinch.
“You can’t pass day-to-day increases on,” Nestlé CEO Mark Schneider told Bloomberg TV this week. “But now this action is underway.”
Nestlé’s overall prices rose 2.1% in the third quarter, the fastest in at least five years.
Consumers in emerging markets have so far faced the highest inflation, as Nestlé’s results show. The Swiss food giant, which makes Nespresso coffee and DiGiorno pizza, raised prices in those countries 2.6% in the first nine months of the year, three times the rate in developed markets. Schneider expects margins to decline this year given the time it takes to pass on the higher costs. Then they should resume improving in 2022.
“What we’re seeing on the inflation front is that it’s going to get worse and of course we’re working on prices to make up for most of that,” Schneider said.
Danone has also indicated that buyers in Europe and the United States will not escape the pressure. He expects costs to increase by around 9% in the second half of the year. “We could see even higher inflation rates next year,” CFO Juergen Esser said on a conference call.
P&G, the maker of Downy fabric softener and Puffs facial tissues, is forecasting spending of $ 2.3 billion in the year due to high merchandise and freight costs. He has raised the prices of many products and says the situation will continue to “evolve”.
The Federal Reserve said in a report on the US economy this week that many companies are demonstrating a “greater ability to pass cost increases on to customers amid high demand.”
A measure of inflation expectations in the United States has reached its highest level since 2005, a sign that financial markets are losing faith in the idea of ”transient” inflation. In the UK, price growth is heading towards a rate that is more than double the BOE’s target.
UK consumers are particularly at risk as Brexit amplifies the challenges. The country’s hotel sector is short of around 500,000 workers and faces cost inflation of up to 18%, according to the Food and Drink Federation. Truck driver wages are rising as freight transport becomes a nightmare for UK grocers.
The pressure on prices is not limited to everyday items. According to Auto Trader Group Plc, used car buyers in the UK are spending around a quarter more than a year ago as soaring demand meets low availability. He said 17% of vehicles less than a year old are more expensive than their new counterparts.
Jay Rembolt, chief financial officer of WD-40, the San Diego-based manufacturer of industrial lubricants and cleaners, said on a conference call that the company is seeing “significant increases” in transportation costs and supplier charges . It raises prices in response.
“We expect prices to stay high until the middle of next year before we start to see some relief on the supply chain front,” Lee said at BMO. “It’s a big fight to get out of this.”