# Cost of living crisis? Consumers keep spending for now
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-07-27
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Consumer-Focused Firms Upgrade Sales Forecasts Amid Soaring
Meta Description: Discover why companies like Reckitt Benckiser and Danone are upgrading sales forecasts amid soaring living costs, and the risk of price hikes in the UK.
URL: https://financedigest.com/cost-of-living-crisis-consumers-keep-spending-for-nowhtml

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By Richa Naidu and Sachin Ravikumar

LONDON (Reuters) – Consumer-focused firms are seeing no shortage of demand despite the soaring cost-of-living, prompting several to upgrade sales forecasts for the current year, though questions remain about how long that will last.

While some consumers are shielding themselves from price hikes by trading down to own label products, enough are spending more for McDonalds to risk lifting the price of a cheeseburger in Britain for the first time in fourteen years on Wednesday.

Companies will raise prices if and when they feel consumers are willing and able to [pay them,” said Nuveen’s Chief Investment](https://www.financedigest.com/sainsburys-pays-524-million-for-full-ownership-of-store-investment-vehicles.html "Sainsbury’s pays 4 million for full ownership of store investment vehicles") Strategist, Brian Nick, “It’s become harder to do this in 2022 as wage growth slows and excess savings fall.

The global economy is mired in a serious slowdown, with some key economies at high risk of [recession over the coming year](https://www.financedigest.com/uk-to-avoid-recession-this-year-but-outlook-still-weak-bcc-says.html "UK to avoid recession this year but outlook still weak, BCC says"), according to Reuters polls of hundreds of economists worldwide.

There is a real concern that demand may be weakening, which will make it hard to justify further [price hikes,”](https://www.financedigest.com/investors-warn-big-consumer-firms-over-price-hikes-as-competitors-gain.html "Investors warn big consumer firms over price hikes as competitors gain") said Nick.

Shops and supermarkets in Britain [increased prices](https://www.financedigest.com/coca-cola-hbcs-annual-profit-beats-warns-of-price-increases.html "Coca-Cola HBC’s annual profit beats, warns of price increases") by 4.4% in the 12 months to July, the largest rise since these records began in 2005, reflecting a jump in food and transport costs, the British Retail Consortium said on Wednesday.

Consumer goods giants Reckitt Benckiser and Danone both [lifted sales forecasts](https://www.financedigest.com/cisco-forecast-raise-allays-tech-spending-fears-lifts-shares.html "Cisco forecast raise allays tech spending fears, lifts shares") on Wednesday along with automaker Mercedes, healthcare firm GSK and sportswear firm Puma.

Reckitt, maker of Dettol and Lysol cleaning products, on Wednesday [raised its full-year revenue forecast after steep price hikes helped it beat](https://www.financedigest.com/tomtom-raises-2023-revenue-outlook-as-automotive-drives-q4-beat.html "TomTom raises 2023 revenue outlook as automotive drives Q4 beat") second-quarter sales expectations.

Danone lifted its annual revenue growth forecast after second-quarter like-for-like [sales beat analysts’ estimates on strong](https://www.financedigest.com/indias-tata-motors-jumps-to-a-7-month-high-on-strong-q4-jlr-sales.html "India’s Tata Motors jumps to a 7-month high on strong Q4 JLR sales") demand for baby food and bottled water.

Like rival Unilever, Reckitt and Danone’s [price rises](https://www.financedigest.com/oil-prices-rise-on-u-s-drawdown-chinese-fears-weigh.html "Oil prices rise on U.S. drawdown, Chinese fears weigh") have driven revenue. The [biggest question for investors](https://www.financedigest.com/top-ten-biggest-mistakes-by-novice-investors-and-how-to-avoid-them.html "TOP TEN BIGGEST MISTAKES BY NOVICE INVESTORS – AND HOW TO AVOID THEM") is how long that will continue.

What we’ve seen is that the [consumer has accepted these price](https://www.financedigest.com/france-leans-on-retailers-to-help-consumers-cope-with-food-prices.html "France leans on retailers to help consumers cope with food prices") increases but inflation is not pulling back,” said Ashish Sinha, portfolio manager at Gabelli. So as [inflation increases](https://www.financedigest.com/global-medical-costs-expected-to-increase-in-2017-despite-lower-rates-of-inflation.html "Global Medical Costs Expected to Increase in 2017 Despite Lower Rates of Inflation"), that raises questions on demand elasticity.

LUXURY GOODS IN VOGUE

Low-income households have been [hit hard by inflation](https://www.financedigest.com/uks-december-shopper-numbers-defy-inflation-and-rail-strikes-hit.html "UK’s December shopper numbers defy inflation and rail strikes hit") because a high proportion of that income is spent on essential items ranging from food to fuel and accommodation.

In contrast, [middle- and high-income households were able to build up substantial savings during the pandemic](https://www.financedigest.com/re-mortgaging-your-home-in-the-middle-of-a-pandemic-what-you-need-to-know.html "Re-Mortgaging Your Home In The Middle Of A Pandemic: What You Need To Know") as restrictions made everything from foreign holidays to eating out more difficult. While some of these savings have since been eroded by inflation, they have more [flexibility to keep spending](https://www.financedigest.com/increasingly-flexible-working-patterns-drive-up-it-and-technology-spend-across-europe.html "Increasingly Flexible working patterns drive up IT and technology SPEND across europe").

That has resulted in [booming demand for luxury items such as sports cars](https://www.financedigest.com/mercedes-benz-lifts-profit-forecast-as-luxury-cars-boom.html "Mercedes-Benz lifts profit forecast as luxury cars boom") and designer handbags.

LVMH, the [world’s biggest](https://www.financedigest.com/biggest-economy-in-the-world.html "Biggest Economy in the World") luxury goods firm, on Monday reported better than expected second-quarter sales, with robust U.S. [growth and a recovery in Europe offsetting declining revenue](https://www.financedigest.com/visa-revenue-growth-slows-more-as-tough-economy-sobers-spending.html "Visa revenue growth slows more as tough economy sobers spending") in Asia.

We’re growing [double digit with most of our brands](https://www.financedigest.com/geelys-ev-brand-zeekr-aims-to-double-sales-in-2023-expand-in-europe.html "Geely’s EV brand Zeekr aims to double sales in 2023, expand in Europe") so we cannot complain about European customers. On [top of that we’ve got significant touristic activities in Europe,” said LVMH financial](https://www.financedigest.com/new-york-holds-top-spot-london-second-in-z-yen-financial-centre-survey.html "New York holds top spot, London second in Z/Yen financial centre survey") chief Jean Jacques Guiony.

American tourists vacationing in London have been spending more because of the [strong dollar](https://www.financedigest.com/asia-shares-slip-dollar-strong-as-yuan-weakens.html "Asia shares slip, dollar strong as yuan weakens"), analysts say.

For now, the increased prosperity of affluent [consumers is offsetting the hit to revenues from lower earners spending](https://www.financedigest.com/50-of-consumers-wont-spend-more-than-20-minutes-applying-for-financial-products-online.html "50% of consumers won’t spend more than 20 minutes applying for financial products online") less.

It’s one of those moments where investors are looking at these [results in Europe and thinking](https://www.financedigest.com/will-global-commodities-suffer-as-a-result-of-brexit-the-experts-at-easymarkets-think-not.html "WILL GLOBAL COMMODITIES SUFFER AS A RESULT OF BREXIT? THE EXPERTS AT EASYMARKETS THINK NOT!") … [business has been resilient,”](https://www.financedigest.com/a-guide-to-building-business-resilience-in-the-financial-services-sector.html "A guide to building business resilience in the financial services sector") said Danni Hewson, financial analyst at AJ Bell.

($1 = 0.8293 pounds)

(Additional reporting by Susan Mathew in Bengaluru; Writing by Matt Scuffham; Editing by Kirsten Donovan, Elaine Hardcastle)


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