To offset rising commodity costs, some companies, such as Coca-Cola and Procter & Gamble, plan to raise prices on their products, reports CNBC. This follows a year of surging demand for a variety of CPG products. According to the Consumer Brands Association, sales of CPG products rose 9.4 percent to $1.53 trillion last year.
James Knightley, ING’s chief international economist, predicts that consumer prices will continue to rise in the near term and could gain almost 4 percent by May, compared to a year ago. This could be helped along by low inventories, which help companies flex their pricing power, said Knightley.
“According to the Institute for Supply Management, their latest survey showed a net 40 percent of manufacturers are reporting that their customer inventories are ‘too low,’” Knightley said. “This offers more evidence that corporate pricing power is strengthening.”
Food industry analyst Phil Lempert says that congested ports, a short supply of truck drivers, and difficulties socially distancing food workers are all factors that have increased costs.
Moody’s analyst Linda Montag noted that consumers may not even notice the price hikes.
“Consumer companies across the board have gotten very savvy about how to implement price increases without just slapping on five to 10 percent price increases,” Montag said.
Some methods include new packaging, selling smaller-size packs for the same price, or offering promotions that bring down the price until consumers are used to the higher sticker price.
On the other hand, price hikes could be beneficial to grocers, according to J.P. Morgan analyst Ken Goldman.
“Too much inflation is bad for grocers, but an incremental 2-3 percent (roughly the percentage the producers need to pass through), with a mix shift toward higher-priced products, is probably very helpful right now,” he said. Full Story