# Companies’ cost inflation is slowing but shoppers may wait for lower prices Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2023-04-26 Category: NEWS Category URL: https://financedigest.com/category/news Meta Title: Consumer Goods Companies Forecast Lower Prices Amid Cost Meta Description: Top companies like Nestle and Danone are paying less for raw materials, but lower prices for shoppers may take time to materialize. Learn more. URL: https://financedigest.com/companies-cost-inflation-is-slowing-but-shoppers-may-wait-for-lower-priceshtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2023-04-26t095340z1lynxmpej3p0drrtroptp4consumer-goods-pricing-1736814095202-compressed.jpg) # Companies’ cost inflation is slowing but shoppers may wait for lower prices By Richa Naidu and Dominique Vidalon LONDON/PARIS (Reuters) -The world’s top consumer goods companies, making everything from instant noodles to soap and ice cream, are paying less for their raw materials and energy, but it may take time before shoppers see significantly lower price tags for their household goods. Rising expenses for everything from sunflower oil to milk and grain have hit the packaged goods industry hard over the past two years, prompting companies to hike prices and helping fuel a cost-of-living crisis in many parts of the world. Cost inflation rose during the COVID-19 pandemic and was exacerbated by [Russia’s invasion of Ukraine](https://www.financedigest.com/ukraine-asks-for-south-korea-cybersecurity-aid-amid-russia-invasion.html "Ukraine asks for South Korea cybersecurity aid amid Russia invasion"), which sent energy prices to record highs last year. Energy costs have since dropped, however, while global [prices for some commodities are rising](https://www.financedigest.com/nestle-sales-soar-as-price-rises-drive-growth.html "Nestle sales soar as price rises drive growth") more slowly. Companies like Nestle, Reckitt Benckiser and Danone continued to raise [prices sharply in the first quarter even though input costs](https://www.financedigest.com/price-isnt-right-find-much-really-costs-get-property-ladder.html "The Price Isn’t Right – Find Out How Much It Really Costs To Get On The Property Ladder") are easing. [Cost of goods inflation will be “significantly” lower](https://www.financedigest.com/just-eat-delivers-q3-profit-as-cost-cuts-outweigh-lower-order-volumes.html "Just Eat delivers Q3 profit as cost cuts outweigh lower order volumes") this year – Reckitt expects 5% to 9% versus 18% last year, the company’s finance chief Jeff Carr said on a call on Wednesday to discuss earnings results. Carr said that while [salary costs have increased](https://www.financedigest.com/top-10-financial-services-roles-set-for-highest-salary-increases-in-2018.html "Top 10 financial services roles set for highest salary increases in 2018"), commodities are a “mixed bag” and freight costs have declined. First quarter price/mix, a basket of variables the [company uses to help determine what prices](https://www.financedigest.com/retail-pricing-software-company-bolsters-leadership-team.html "Retail pricing software company bolsters leadership team") to charge, rose 12.4% while sales volumes declined 4.5%. Our pricing obviously will be measured in 2023, where we did most of our heavy [lifting or pricing](https://www.financedigest.com/global-equities-waver-on-inflation-view-as-falling-oil-supplies-lift-prices.html "Global equities waver on inflation view as falling oil supplies lift prices") in 2022,” Carr said. Danone CFO Juergen Esser told a post-earnings call with analysts that while labour costs, liquid milk and sugar prices are up, some other costs are down, so “we [expect inflation](https://www.financedigest.com/uk-inflation-expectations-show-record-jump-in-sept-citi-yougov.html "UK inflation expectations show record jump in Sept -Citi/YouGov") to decrease through the year. The [maker of Activia yoghurt and Evian water raised first-quarter prices](https://www.financedigest.com/ev-maker-rivian-prices-ipo-above-range-to-raise-over-11-9-billion.html "EV maker Rivian prices IPO above range to raise over .9 billion") by 10.3% and volume/mix rose 0.2%. It is unclear when companies may start passing on some of their lower [costs to customers](https://www.financedigest.com/sdl-helps-lifeplus-engage-with-customers-across-50-countries-and-gain-control-of-translation-costs-and-processes.html "SDL Helps Lifeplus Engage with Customers across 50 Countries and Gain Control of Translation Costs and Processes"). On Tuesday, Associated British [Foods said it does not expect](https://www.financedigest.com/ab-foods-says-primark-trading-ahead-of-expectations.html "AB Foods says Primark trading ahead of expectations") many more price increases in the second half of this year, as costs including wheat, vegetable oils, freight and energy start to fall. ## ‘NOT DEFLATION’ [Companies including Unilever](https://www.financedigest.com/unilever-cfo-pitkethly-to-leave-company-by-may-2024.html "Unilever CFO Pitkethly to leave company by May 2024"), which reports earnings on Thursday, acknowledged in February that the industry was past “peak inflation, but not yet past peak pricing. Several firms have since made near-record price hikes: beverage giant Coca-Cola Co said average selling [prices rose by 11% in the first quarter, while rival PepsiCo Inc said its prices gained](https://www.financedigest.com/oil-prices-slip-on-cloudy-demand-outlook-but-poised-for-weekly-gain.html "Oil prices slip on cloudy demand outlook, but poised for weekly gain") 16%. Many in the industry bought ingredients far in advance, when [prices were higher](https://www.financedigest.com/wall-street-set-to-open-higher-oil-prices-extend-losses.html "Wall Street set to open higher, oil prices extend losses"), so it will take time for that to trickle through to the supermarket shelves. We tend to buy commodities nine to 12 months out,” Pepsico [chief financial officer](https://www.financedigest.com/impact-com-names-hubspot-veteran-kim-walsh-as-chief-growth-officer.html "impact.com Names HubSpot Veteran Kim Walsh as Chief Growth Officer") Hugh Johnston said. So to the degree that the rate of [inflation](https://www.financedigest.com/hungary-ramps-up-rate-hikes-as-war-stokes-inflation-risks.html "Hungary ramps up rate hikes as war stokes inflation risks") decreases – and it will be a decrease in the rate of inflation, not deflation by any stretch of imagination – that’s going to happen very slowly over the course of 2023. The European Central Bank is concerned that if food [inflation keeps accelerating](https://www.financedigest.com/hsbc-puts-2022-buyback-ambitions-on-ice-as-inflation-accelerates.html "HSBC puts 2022 buyback ambitions on ice as inflation accelerates"), it will have an outsized impact on consumers’ inflation perception, potentially changing spending behaviour, pressuring wage demands and impacting interest rates. P&G customers, particularly in the United States, continued to show little resistance during the quarter to 10% price increases, helping the Tide detergent [maker boost its sales forecast](https://www.financedigest.com/elevator-maker-kone-hikes-outlook-as-q1-profit-orders-beat-forecasts-2.html "Elevator maker Kone hikes outlook as Q1 profit, orders beat forecasts") and third-quarter margins. Overall volumes fell just 3%. Similarly, Nestle increased its prices by 9.8% during the quarter and [sales volumes – which the company calls real internal growth](https://www.financedigest.com/puma-expects-q2-sales-growth-below-full-year-target.html "Puma expects Q2 sales growth below full-year target") – fell only 0.5%. CEO Mark Schneider said the [European consumer had been more “resilient” than expected](https://www.financedigest.com/january-windstorms-expected-to-cost-european-insurers-more-than-2bn-according-to-aon-catastrophe-report.html "January windstorms expected to cost European insurers more than bn, according to Aon catastrophe report"). When a company can raise prices to a large degree “it highlights the value of their brands, the value of their pricing power” said Neil Denman, a [fund manager at Reckitt and Unilever investor Sarasin & Partners](https://www.financedigest.com/nissan-pushes-partner-renault-to-sell-down-stake-may-raise-funds-source.html "Nissan pushes partner Renault to sell down stake, may raise funds -source"). I think that’s what we’re going to see with [companies through this year:](https://www.financedigest.com/companies-that-dont-upgrade-their-financial-processes-this-year-will-get-left-behind.html "Companies that don’t upgrade their financial processes this year will get left behind") which companies really have the ability to pass prices through in a difficult consumer environment? (Additional reporting by Ananya Mariam Rajesh and Radhika Anilkumar, Editing by Josephine Mason and Catherine Evans) --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---