Inflation and Prices Continue to Climb
Consumers Should Brace for Higher Prices
US consumers should be prepared for even higher prices as companies across the country respond to inflation rates not seen in years.
Take the food and beverage industry. Nestlé (NSRGY), Diageo (DEO), AB InBev (BUD), and Danone (DANOY) have all raised their prices recently. The companies have pointed to increasing costs for ingredients, packaging, and transportation costs as reasons for price hikes when they reported quarterly earnings earlier this week. Meanwhile, toy makers like Hasbro (HAS) and Mattel (MAT) said supply-chain disruptions and increasing prices for materials and labor are prompting them to increase their prices as well. Toy companies are racing to build up enough inventory ahead of the holiday season.
Material, Transportation, and Labor Costs Weigh on Margins
Companies across most industries are dealing with rising material and transportation costs. At the same time, demand for many products is surging after a year and a half of restrictions on businesses. These two trends combined have caused prices to surge.
Inflation in the US is rising at the quickest rate in over 10 years. In the first half of this year, Nestlé raised prices by an average of 1.3% across its categories. Prices for its milk-based products including ice cream are up 3.5%. Prices for its water increased 1.6%. For the year, Nestlé expects its input costs to increase by 4%, which will hurt profitability.
Meanwhile, AB InBev said rising prices for barley, transportation, and cans are causing its costs to increase even as it benefits from the economy reopening. Diageo, which posted an 8.3% rise in second-quarter sales, said North American margins took a hit largely because of the increase in the cost of agave, a key tequila ingredient.
Delays Ahead of the Holidays?
The toy companies racing to stock up ahead of the holidays are facing similar issues.
Shipping bottlenecks are resulting in delays for products from China, where most of the toys for the US market are made. Meanwhile, shipping rates are up significantly, which is hurting toy makers’ margins. These trends are prompting Hasbro to source products from different countries to ensure it has enough inventory to meet demand. It is prompting MGA Entertainment, the toy company behind the popular LOL Surprise dolls, to raise prices to offset rising costs. Some of its products priced at $10 will increase to $12, while toys which sell for $29 will soon sell for $35.
From supply bottlenecks to increasing material and labor costs, prices for everything from ice cream to dolls are increasing. It will be interesting to see how much consumers are willing to absorb.
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