Inflation is coming and the price of goods in the United States is quietly rising.
Some major U.S. companies such as Coca-Cola and Procter & Gamble (P&G) have announced that they are prepared to offset losses from rising product costs by raising prices. PepsiCo (Pepsi), Kimberly Clark, General Mills and J.M. Smucker (J.M. Smucker, or Sheng Mei Home Foods) are also dealing with price increases. And consumers may not even realize they will be paying more for their children’s diapers and sodas.
In addition, the cost of raw materials, including wood and resin, is also soaring, and companies are beginning to take steps to protect their bottom lines and prevent losses.
The current price increase follows a surge in demand for a range of items from paper towels to peanut butter jars in the past year.
Sales of consumer packaged goods rose 9.4 percent last year to $1.53 trillion, according to the Consumer Brands Association. Many manufacturers struggled to keep up with demand, so they reduced advertising and promotions, gaining market share without significant marketing efforts.
CNBC reported that James Knightley, chief international economist at ING, predicted that consumer prices will continue to rise in the near term and could rise nearly 4 percent by May of this year compared to the same time last year. According to the Department of Labor, tracking the U.S. consumers pay for a basket of goods consumer price index (Consumer Price Index) rose 2.6% in March compared with the same period last year.
Which goods will increase in price
Procter & Gamble’s Pampers (Pamers), skin care (Always) and other brands have begun to increase prices due to rising costs of raw materials and other production costs such as commodities. Price increases include products such as diapers, women’s care and adult care. Procter & Gamble announced on the 20th financial table shows that the price increase is expected to take effect in September this year, the price increase range between 5% to 9%.
Coca-Cola said last week that it would raise the prices of its products around the world this quarter.
Kimberly-Clark, a manufacturer of household paper and personal care products, also notified customers that it will raise prices in North America. The company did not specify which products would see price increases. Familiar brands include: “Kleenex” (Kleenex) tissue, “Kotex” (Scott) toilet paper, “Kotex” (Kotex, also known as Kotex Kotex (also known as Kotex) feminine hygiene products, Huggies and adult care products such as Depend.
Centurion Foods’ product line includes fruit, coffee, peanut butter, jam, shortening, baking mixes, instant frosting, canned milk, flour, baking ingredients, juice and more. Centurion Foods’ brands include Folgers, Dunkin’ Donuts, Cafe Bustelo, Millstone, Cafe Pilon, Smucker’s, Jif, Crisco, etc.
Inventory too low
James Knightley said low inventories have helped companies increase their ability to adjust their prices. He said, “The latest survey by the Institute for Supply Management (the Institute) shows that 40 percent of manufacturers are reporting that their inventories are too low, indicating that companies are strengthening their pricing power.”
Food industry analyst Phil Tedesco (Phil Tedesco) said numerous factors are contributing to rising costs, including higher costs for farmers who pick produce, higher costs for factories that produce fast-consuming products, and higher costs for meat processing plants that process meat, such as overcrowded ports, a shortage of truck drivers, and the need for food workers to maintain social distance, which is causing companies struggling to keep up with demand and needing to import products from around the world, whether it’s grains or Italian cheese.
Price increases become hidden
Linda Montag, an analyst at Moody’s, said rising prices are not a competitive advantage because all consumer goods producers are facing rising commodity costs.
Montag said, “Companies have become very savvy in how they implement price increases, rather than just slapping on a 5 to 10 percent price increase.”
She said that manufacturers will change the packaging of goods (using the same price of smaller size packaging) or increase promotions and other ways to bring down the price of goods, until consumers are used to higher prices. Hedging positions (Hedging positions) may also allow companies like Coca-Cola and Pepsi to have more flexibility to gradually raise prices, because this way of operation makes them less likely to experience the impact of higher commodity costs in several quarters.
Consumers have more cash in their wallets and are under more pressure
Price increases always carry the risk of lower demand for these products. However, Moody’s (Moody’s) analyst Chedly Louis (Chedly Louis) said she does not expect consumers to switch to private-label products, because consumers during the crisis to uphold the trust of large companies brand. This behavior is expected to persist for a longer period of time.
“Consumers are likely to choose cheaper, lower-margin products in P&G’s portfolio. It’s still a P&G brand, but it’s cheaper,” Lewis said.
However, many consumers are holding more cash in their hands because the U.S. government has issued three rounds of stimulus checks since last year, and people are forgoing travel, not having to buy sports tickets, and not being able to go out for fine dining, which has kept a lot of cash in consumers’ wallets.
Discount promotions will become less common
Most retailers will pass on the pressure of price increases to consumers. Lempert said grocery stores are offering higher-priced services, such as online grocery delivery or curbside pickup, so margins have little room to absorb higher food costs.
Grocery costs are already rising, retailers are offering fewer discounts, and shoppers swept in last spring and bought more cooking supplies than usual in the following months. In a typical month, 31.5 percent of products are sold through discounted sales, said Phil Tedesco, vice president of retail intelligence analysis at NielsenIQ. In March, only 28.6 percent of products were sold through promotions.
This resulted in fewer opportunities for shoppers to get store discount promotions and, as a result, a slight increase in the total cost of grocery products, he said.”
JPMorgan Chase (J.P. Morgan) analyst Ken Goldman (Ken Goldman) wrote in a report to clients on Monday that higher prices are good for food retailers. Especially in the last year, it is difficult to make comparisons because of soaring demand.
Too much inflation is bad for grocers, he said, “but with inflation now at 25-3% and the shift to a higher-priced product mix, it could be (good for them) now.”
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