Unilever reckons inflation is here to stay. That’s bad news not just for investors in the consumer goods giant but also for central bankers.
The like of the Federal Reserve will have been hoping inflationary pressures would ease sooner rather than later as they walk the tightrope of keeping prices from overheating while not choking off the recovery by raising interest rates too far and too fast.
However, given the breadth of costs Unilever is exposed to and the fact that dealing with input costs is bread and butter for a consumer goods company, a warning that inflation will be higher in 2022 carries weight.
“For now Unilever hopes price increases, running at the highest rate in years, will keep margins flat year on year but the company faces its own balancing act of not increasing prices so much that its products are no longer competitive. It is a real test of the strength of the company’s brands,” said AJ Bell’s Danni Hewson.
“After all, will we really stick with branded soap at a materially higher price when there’s an unbranded alternative sitting next to it on the shelf which is an order of magnitude cheaper?
“If enough consumers decide they can put up with a cheaper alternative then it would become a big problem for Unilever.”