With soaring inflation piling pressure on corporate profit margins, many companies have decided to pass on rising costs to consumers who are already seeing their own spending power squeezed.
In the U.S., inflation hit a 40-year high in the 12 months leading up to March, reaching 8.5%. Many other countries are also facing spiraling inflation—the euro zone’s inflation reading for the year to March was a record 7.4%, while the U.K., grappling with its biggest cost-of-living crisis in decades, saw inflation hit 7% in the same period, marking the country’s highest inflation rate since 1992.
As investors monitored a flurry of corporate earnings this week, a raft of companies said they would continue hiking product prices to mitigate the impact of surging costs.
Mark Schneider, CEO of Swiss food giant Nestlé, said in the company’s earnings report Thursday that although total sales rose by 5.4% in the first three months of 2022, “cost inflation continues to increase sharply, which will require further pricing and mitigating actions over the course of the year.”
Nestlé is the maker of countless popular consumer staples, including KitKat bars, Nescafé coffee, and Häagen-Dazs ice cream.
Meanwhile, consumers are already paying more for products made by Danone, which include Activia yogurt, International Delight coffee creamer, and Evian bottled water.
While the company scored year-on-year net sales growth of 7.1% in the first quarter of the year, it warned this week that ongoing supply disruptions continue to make its operating environment highly volatile. Danone, which said it had been able to achieve sales growth even while raising its prices, added that pricing actions would continue to be part of its strategy to ensure its 2022 guidance was met.
This week, P&G—which manufactures household staples including Head & Shoulders shampoo, Olay skin care, Oral-B toothpaste, and Pampers diapers—said that in the three months to March, price increases of 5% across the board helped P&G achieve organic sales growth of 10% from a year earlier.
Paint maker AkzoNobel also said this week that it would continue to pass on cost headwinds to consumers through the course of the year.
“Pricing initiatives more than offset the increase of raw material and other variable costs,” the company said in its earnings report on Thursday. “AkzoNobel aims to continue to offset raw material and other variable cost inflation (including freight) through pricing initiatives.”
Heineken, which said Wednesday that “assertive pricing” had helped it achieve net revenue growth of 24.9% in the first three months of the year, told investors it would continue to raise its prices.
“Looking ahead, we see more macroeconomic uncertainty and expect significant additional inflationary headwinds putting further pressure on our cost base,” CEO Dolf van den Brink said. “We will take additional actions including pricing to manage these challenges.”
Holger Schmieding, chief economist at Berenberg, told Coins2Day on Friday that while companies have little choice but to pass costs on to consumers, households may soon be forced to evaluate their spending habits.
“Faced with soaring utility bills and higher [gasoline] costs, some consumers will likely cut back on purchases of non-essential goods,” he said.
Schmieding noted, however, that many consumers built up extra savings during the pandemic.
“Governments supported their incomes while lockdowns restricted their ability to spend. I expect consumers to dip into these savings, especially for vacations and other activities that they missed during the pandemic,” he added. “So it could be a very mixed picture, less spending on some nonessential goods, more spending on holidays and similar activities.”
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