With prices for raw materials climbing, Nestlé, Procter & Gamble, Unilever, and other makers of consumer staples have laid plans to pass those greater costs to consumers.
We had predicted back in our 4 August 2020 issue that inflation – caused in part by supply-chain disruptions and then pushed up by higher demand as economies reopened – would steadily rise.
The price of palm oil, used in everything from lipstick to animal feed, has climbed to levels not seen since 2008 because of a shortage of migrant labor; milk prices in Europe are up 50 percent this year.
Costs for paper, plastic, and other materials to make packaging have risen 40 percent in the last 16 months, according to Mintec, a commodities market research firm.
The U.S. Consumer Price Index jumped 0.6 percent in March, the largest monthly gain since August 2012, the U.S. Bureau of Labor Statistics reported; Britain’s inflation sprinted at 0.7 percent for the month, due to rising prices for oil and clothing.
Confirming what we had long forecast, Unilever expects its input costs to rise even faster in this year’s second half as a global economic recovery sharpens demand for materials of all kinds, CFO Graeme Pitkethly said in comments cited by the FT. General Mills reports higher shipping costs.
U.S. makers Procter & Gamble and Kimberly Clark already have announced price hikes “in the mid-to high single digits” will appear on many of their products this summer, as we reported in the 27 April Trends Journal.
On-Trend
Also, some companies may choose to cloak price increases with “shrinkflation,” which involves holding retail prices steady while shrinking the amount of product in packages, Will Hayllar, managing partner at strategy consulting firm OC&C, told the FT.
TRENDPOST: Will consumers swallow the price hikes? John Ruth, CEO of the Build Asset Management advisory firm, made it clear when he said to FT, “Businesses will tend to pass on what the consumer can stomach.”
During the lockdowns, manufacturers typically swallowed cost increases to keep retail prices competitive. Now that the economy is reviving, consumers will soon share the price pain.
The rising prices in commodities and many products that are now evident are just the beginning of the price spike.
Manufacturers often place market hedges against rising prices, then work through current inventories before jacking up consumers’ costs. As a result, consumers will not see higher prices on many items for some weeks yet, even though raw materials costs have been climbing since January.
