Unilever increased prices on its products by 4.1 per cent in the third quarter – the biggest rise in almost a decade – as the global consumer group warned consumers inflation was set to accelerate next year.
The London-based producer of Lifebuoy and Dove soap, Oxo beef stock, Hellmann’s mayonnaise and Magnum ice cream pushed rising raw material costs amid the global supply chain crisis onto consumers to compensate for a decline in shipments to South-East Asia because of Covid-19 outbreaks.
Consumers should expect at least another 12 months of inflationary pressure, Unilever's chief executive Alan Jope said, as the company posted strong quarterly sales growth.
“Peak inflation will be in the first half of 2022, and it will moderate as we move towards the second half,” Mr Jope said.
Unilever’s share price was the top gainer on the FTSE100 at 1.11pm London time on Thursday, rising 2.92 per cent following its robust sales update.
Meanwhile, the company’s chief financial officer said shoppers can see “that we’ve stepped up the pricing”.
“That’s in response to the really very high levels of inflation that we are seeing. We think that will continue through the end of this year and next."
Annual inflation across some of the world’s largest economies increased to 4.3 per cent in August, driven by rising energy and food prices, according to the Organisation of Economic Co-operation and Development.
The rise in prices continued an upward trend that began in December 2020, with energy prices in the 37-member economic bloc rising at a faster pace of 18 per cent in August and food inflation increasing sharply to 3.6 per cent.
Unilever expects rising prices to continue next year, putting pressure on consumer goods companies as they hike prices to try to offset surging energy and other costs.
The company beat third-quarter sales growth forecasts, with underlying sales rising 2.5 per cent in the three months ending September 30, while growth was boosted by demand in the US, India, China and Turkey.
Meanwhile, the 4.1 per cent increase in prices more than offset a 1.5 per cent decline in volumes, with most of the drop coming from South-East Asia, where a rise in cases of the Delta variant of the coronavirus forced governments to implement stringent lockdowns that curbed consumption.
AJ Bell
“Unilever reckons inflation is here to stay. That’s bad news not just for investors in the consumer goods giant but also for central bankers,” said AJ Bell financial analyst Danni Hewson
“The like of the Federal Reserve will have been hoping inflationary pressures would ease sooner rather than later as they walk the tightrope of keeping prices from overheating while not choking off the recovery by raising interest rates too far and too fast.”
Given the breadth of costs Unilever is exposed to and “the fact that dealing with input costs is bread and butter for a consumer goods company”, a warning that inflation will be higher in 2022 “carries weight”, said Ms Hewson.
Britain’s inflation rate dipped to 3.1 per cent in the 12 months to September after the artificial blip caused by last year’s ‘Eat Out to Help Out,’ scheme dropped out of the figures, but analysts warned consumers of higher prices to come.
As a major supplier to Britain’s supermarkets, managing cost inflation is a major challenge for Unilever as its sales are dominated by emerging markets where rising prices for energy, raw materials and freight are having an impact.
Unilever’s price rises were also higher than market rival Nestle, which said earlier this week it pushed prices up 2.1 per cent in three months ending September.
“For now Unilever hopes price increases, running at the highest rate in years, will keep margins flat year on year but the company faces its own balancing act of not increasing prices so much that its products are no longer competitive. It is a real test of the strength of the company’s brands,” said Ms Hewson.
“After all, will we really stick with branded soap at a materially higher price when there’s an unbranded alternative sitting next to it on the shelf which is an order of magnitude cheaper?
“If enough consumers decide they can put up with a cheaper alternative then it would become a big problem for Unilever.”
