“Inflation has been virtually absent for a number of years and then pointed up very sharply. It hit us directly,” CEO Mark Schneider told reporters on a conference call.
The company can hedge against some cost increases, such as rising coffee prices, said Schneider. But it can’t avoid the rising cost of things like transportation, which puts pressure on the company’s margins.
Some companies are able to hedge against rising prices, for example by buying commodity futures, or choose to absorb higher costs. But others are passing on cost increases to consumers, leading to higher prices at supermarkets, restaurants and goods retailers.
Nestlé rival Unilever said last week that it was increasing prices across multiple markets and product categories in response to higher input costs. The owner of brands including Ben & Jerry’s cited the example of soybean oil prices, which increased 20% last quarter and are now up 80% compared to the previous year. Palm oil prices are 70% higher than their long-term average.
“Inflation is impacting us across the full spectrum of input costs in materials, in packaging and quite notably in freight and distribution costs,” Unilever chief financial officer Graeme Pitkethly told investors on July 22. “We have been and will continue to pull all the levers of pricing and saving.”
The big question is whether shortages and price hikes are temporary byproducts of the pandemic, or if the global economy is changing in ways that could permanently hike the cost of doing business and usher in a new era of inflation that could eat into consumer spending power.
Central banks including the US Federal Reserve are grappling with how to respond. Many economists believe that price hikes will prove fleeting, but if they’re wrong central banks could be forced to abruptly pull back support for the economy later this year in order to get inflation under control.