Friday, January 21

Do you think everything is expensive now? – Moneyweb


Consumers around the world are poised to be hit by even higher prices on everyday items, companies from food giant Unilever Plc to lubricant maker WD-40 Co. warned this week, as they grapple with supply difficulties. supply.

The maker of Dove soap and Magnum ice cream bars raised prices by more than 4% on average last quarter, the biggest jump since 2012, noting that high prices will continue into next year. A similar refrain came from Nestlé SA, Procter & Gamble Co. and Danone SA, whose products dominate supermarket aisles and kitchen cabinets.

“We have at least another 12 months of inflationary pressures ahead of us,” Unilever CEO Alan Jope said in an interview with Bloomberg Television. “We are in an inflationary environment of once in two decades.”

Businesses face a terrible mix of supply chain challenges, as well as higher energy, raw material, packaging and shipping costs. While most of the consumer goods manufacturers reporting this week’s results expressed confidence that they will be able to limit the long-term impact to profitability, that means the pain passes to consumers, putting more pressure on pockets. as Christmas approaches.

In the US, inflation has accelerated rapidly to the strongest level since 2008. In developed economies, post-pandemic demand-supply imbalances have pushed the rate above 4% for only the second time. in the last two decades.

The return of pricing power marks a sea change in the global economy and poses a new challenge for central bankers after years of missing inflation targets. They are trying to figure out whether they should accelerate the removal of stimulus from pandemic-hit economies or hold firm because the price spikes are temporary.

“This is a story that is consistent around the world,” said Jennifer Lee, senior economist at BMO Capital Markets. “It’s something consumers have to resign themselves to right now.”

Companies tend to raise prices gradually, so the start of an inflationary period tends to hurt profitability further. If they pass on cost increases too quickly, buyers will switch to cheaper competitive products or postpone purchases. Some are also subject to contracts, creating a backlog for households feeling pressured.

“You can’t carry over increases overnight,” Nestlé CEO Mark Schneider said on Bloomberg TV this week. “But now that 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 higher inflation, as seen in Nestlé’s results. The Swiss food giant, which makes Nespresso coffee and DiGiorno pizzas, raised prices in those countries by 2.6% in the first nine months of the year, three times the rate in developed markets. Schneider expects margins to fall this year given the amount of time it takes to pass on higher costs. Then they should resume improvement in 2022.

“What we see from the inflation front is that the situation is going to get worse and then of course we are working on pricing to offset most of that,” Schneider said.

Danone has also indicated that buyers in Europe and the US will not escape the squeeze. Expect costs to increase about 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, expects $ 2.3 billion in expenses this fiscal year due to high freight and freight costs. It has increased 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 showing “increased ability to pass on cost increases to customers amid strong demand.”

A measure of US inflation expectations has risen to its highest level since 2005, a sign that financial markets are losing faith in the idea of ​​”transitory” inflation. In the UK, price growth is targeting a rate that is more than double the BOE target.

British consumers are particularly exposed as Brexit magnifies the challenges. The country’s hotel sector has a shortage of around 500,000 workers and faces cost inflation of up to 18%, according to the Food and Beverage Federation. Truckers’ wages are rising as freight transport becomes a nightmare for UK shopkeepers.

Price pressure is not limited to everyday items. Used car buyers in the UK are spending around a quarter more than a year ago as growing demand collides with low availability, according to Auto Trader Group Plc. He said that 17% of vehicles less than a year old are more expensive than new equivalents.

Jay Rembolt, chief financial officer for WD-40, the San Diego-based manufacturer of industrial cleaners and lubricants, said in a conference call that the company is experiencing “significant increases” in transportation costs and supplier rates. It is raising prices in response.

“We see that prices will remain high until the middle of next year before we start to see some relief at the supply chain front,” said BMO’s Lee. “It is a great struggle to figure it out for yourself.”

© 2021 Bloomberg


www.moneyweb.co.za

Leave a Reply

Your email address will not be published. Required fields are marked *