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Think everything's expensive now? Get ready for what's next

Thomas Mulier, Bloomberg News on

Published in Business News

Consumers around the world are about to get socked with 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.

The maker of Dove soap and Magnum ice cream bars jacked up prices by more than 4% on average last quarter, the biggest jump since 2012, and signaled elevated pricing will continue into next year. A similar refrain came from Nestle SA, Procter & Gamble Co. and Danone SA, whose products dominate supermarket aisles and kitchen cupboards.

“We’re in for at least another 12 months of inflationary pressures,” Unilever CEO Alan Jope said in a Bloomberg Television interview. “We are in a once-in-two-decades inflationary environment.”

Companies are facing a dire mix of supply-chain challenges, as well as higher costs for energy, raw materials, packaging and shipping. While most consumer-goods makers reporting results this week expressed confidence that they’ll be able to limit the long-term hit to profitability, that means the pain passes to consumers, upping the squeeze on pockets as Christmas approaches.

U.S. inflation has accelerated rapidly this year to the strongest since 2008. Across developed economies, the post-pandemic supply-demand imbalances have pushed the rate above 4% for only the second time in the past two decades.

In the U.K., the cost of hedging against inflation over the next decade rose on Friday to the 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 undershooting inflation targets. They’re trying to figure out whether they should quicken the removal of stimulus from pandemic-hobbled economies, or stand pat because the price spikes are temporary.

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

Companies typically raise prices gradually, which is why the start of an inflationary period usually damages profitability the most. If they pass on cost increases too quickly, shoppers will shift to cheaper products from competitors or put off purchases. Some are also locked into contracts, creating a delay in households feeling the pinch.

“You can’t pass on increases from one day to another,” Nestle CEO Mark Schneider said on Bloomberg TV this week. “But now that action is underway.”

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