Customers ‘watching every penny’ says Sainsbury’s, as Unilever prepares more price rises – business live

Unilever has confirmed that more price rises are coming, as it is hit by ‘extreme’ increases in raw material costs.

That would be on top of the 8% rise in prices in the first quarter of the year, as cost pressures began to mount.

Reuters has the details:

“As far as pricing and volumes, I think we are in unchartered territory,” Chief Executive Alan Jope said on an earnings call.

“While we’re acutely aware of the pressure on consumers, we believe that increasing prices in response to this extreme commodity cost pressure is the right thing to do.”

Analysts said prices were only going to go higher.

Unilever’s full-year costs “are going to quadruple versus a year ago. That’s why the pricing needs to be so high, and that’s why the price is going to go much higher,” Barclays’ Warren Ackerman said. “This is not the peak.”

“The worry is what will happen to volumes when pricing goes up more?”

In the first quarter, Unilever hiked prices the most in Latin America – by 16.4% – and in other emerging markets.

As flagged in the introduction, Unilever now expects its input cost inflation would reach €2.7bn in July-December, a jump of €1.2bn on its previous forecast.

The increase in oil, grain, other agricultural costs, and fertiliser following the invasion of Ukraine is hitting many consumer goods makers. Unilever, whose brands also include Knoor stock cubes, Hellmann’s mayonnaise and Magnum icecreams, is clearly exposed.

And while it raised prices by over 8% in the first quarter of the year, sales grew 7.3% after volumes fell 1% as some customers shifted to cheaper, own-brand options.

Helen Davidson

In China, authorities have said they are cracking down on price gouging as food shortages due to Shanghai’s lockdown continue and fears in Beijing prompt a run on supermarkets.

It comes as social media platforms shut down the account of a high-profile critic of the government’s insistence on a traditional Chinese medicine product being rolled out to millions of residents.

On Wednesday, the Ministry of Public Security pledged any individuals taking advantage of outbreaks to make a profit would be dealt with strictly, with fines of up to 3m yuan (£363,400).

In Shanghai, one man faced administrative punishment for “fabricating and disseminating price increase information and disrupting market price orders”. The man was accused of buying produce and reselling it online at prices increased by up to 360%. Another was accused of renting someone else’s business licence and selling produce and food online at inflated prices, making $230,000 (£180,000) in profit. Last month, Shanghai’s market supervision authorities said they had already issued about 20,000 warning letters over price gouging.

More here:

Sainbury’s CEO Simon Roberts says customers are starting to ‘watch every penny’ as the cost of living rises.

Speaking to reporters following this morning’s results, Roberts said:

“It’s early days, the first month with the (higher) fuel bills landing …

But we can see the early signs of customers being a bit more cautious, watching every penny, every pound.”

Energy bills soared this month because the price cap was lifted by 54%. Other bills also jumped too, such as council tax and telecoms bills.

Brexit is also a key factor driving up inflation, according to Adam Posen, a former Bank of England policy maker.

Posen warned yesterday that most of Britain’s inflation problem stems from Brexit.

The ex-MPC member also said he’d vote for a half-point interest rate increase to curb an upward surge in prices.

Bloomberg has the details:

The economist who heads the Peterson Institute for International Economics in Washington, a prominent research group, said that 80% of the reason why the International Monetary Fund expects Britain’s inflation to remain elevated for longer than its Group of Seven peers is the impact of its departure from the European Union on immigration.

“We see a very large gap between the inflation rate in the U.S. and the inflation rate in Europe — the U.K. ends up in between,” Posen said at a conference hosted by the U.K. in a Changing Europe research group.

“You’ve seen a huge drop in migrant labor. When you look at the macro factors, it’s very difficult to see anything other than the labor market issues.

It really seems like Brexit has to bear a disproportionate role in explaining the inflation.”

UK firms have been warning of labour shortages for many months, with vacancies soaring over the one-million mark to record highs.

The UK government is set to announce a fourth delay to physical checks on fresh food imported from the European Union later today, having continually struggled to get the necessary technology or infrastructure ready since leaving the EU.

My colleague Lisa O’Carroll explains:

The Brexit opportunities minister, Jacob Rees-Mogg, is expected to frame the move as use of the UK’s newfound independent powers to control the trade border since the departure from the EU and the single market.

He is also expected to say it is a response to supply chain fears in a trading environment already hit by the Ukraine war and cost of living crisis.

Banking group Barclays has warned that the cost of living crisis is hitting its customers.

Reporting its latest financial results, chief executive C. S. Venkatakrishnan told shareholders that inflation, supply chain issues and higher energy costs are hitting people and companies:

We remain focused on the impact higher prices are having on our customers and our small business and corporate clients, all of whom are facing far harder conditions this year as a result of inflation, supply chain issues and higher energy costs. We will support them through this difficult period wherever we can, and support the wider economy just as we did through the COVID-19 pandemic.

But revenue rose 10% to £6.5bn, beating forecasts, as Barclays’ investment banking arm benefited from volatile markets amid the war in Ukraine.

Our income growth was driven partly by Global Markets, which has been helping clients navigate ongoing market volatility caused by geopolitical and economic challenges including the devastating war in Ukraine, and by the impact of higher interest rates in the US and UK.

Barclays reported that pretax profits dropped to £2.2bn in the first three months of the year, down from £2.4bn a year ago.

That included £500m of ‘litigation and conduct costs’, including £320m set aside over a blunder in which it issued about $15bn more structured notes and exchange traded notes than it had registered for sale.

The FT’s banking editor Stephen Morris it was a ‘messy quarter’:

Barclays has now put its share buyback plans on hold as US regulators probe the blunder.

“Barclays remains committed to the share buyback programme and the intention would be to launch it as soon as practicable following resolution of filing requirements being reached with the SEC.”

Shares in Sainsbury’s have dropped over 5% at the start of trading in London, after it warned that profits will fall this year due to soaring inflation.

Supermarket chains are locked in a fight to hold onto customers as prices jump. Earlier this week, Asda committed £73m to cut or freeze prices on 100 products, while Morrisons says it will cut prices on 500 products.

Sainsbury’s says it is raising prices less sharply than rivals on some popular products, such as milk, eggs, bread, fish and meat.

CEO Simon Roberts says:

We have been able to drive more investment into lowering food prices funded by our comprehensive cost savings plans.

As a result, we continue to inflate behind competitors on the products customers buy most often. Last week we announced the next bold phase of investment, lowering prices across 150 of our highest volume fresh products.

Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.

A flurry of UK companies are warning today that inflation pressures are rising, intensifying the cost of living squeeze on consumers.

Consumer goods giant Unilever, whose brands include makes Marmite, Dove soap and Ben & Jerry’s ice cream, has reported that input costs have “further accelerated” through the first three months of the year.

It plans to pass these costs onto consumers – having already raised prices by over 8% year-on-year in the last quarter.

With the Ukraine war driving up raw material inflation, Unilever now expects its costs in the second half of this year to rise by €2.7bn. That’s up from a forecast of €1.5bn three months ago, and on top of input cost inflation of around €2.1bn in the first half.

Unilever says:

This period of unprecedented inflation requires us to take further pricing action with some impact on volume as a result.

CEO Alan Jope explains the company is navigating ‘unprecedented cost inflation’, adding:

Underlying sales growth of 7.3% was driven by strong pricing, with a limited impact on volume in the quarter.

This performance was delivered against the backdrop of significant rises in input costs that have further accelerated through the first three months of the year, and the human tragedy of the war in Ukraine.

While prices soared 8.3%, sales volumes were down 1% — suggesting consumers may have sought out cheaper options as inflation hit household budgets.

Unilever now expects full-year underlying sales growth to be towards the top end of its 4.5-6.5% guidance range, but the full-year underlying operating profit margin could be the bottom end of its 16-17% range.

Supermarket chain Sainsbury’s is also seeing the impact of rising costs, with the Ukraine war having driven up energy costs, and a wide-range of agricultural products including cooking oil and wheat.

It told shareholders this morning:

The year ahead will be impacted by significant external pressures and uncertainties.

Sainsbury’s warned shareholders that profits this year will be hit by soaring inflation and a fall in customers’ disposable incomes.

It now expects underlying profit before tax to fall to between £630m and £690m, from the £730m underlying profit in the last 12 months.

Sainsbury’s CEO Simon Roberts says it’s been a year of unprecedented change:

“The dreadful situation in Ukraine continues to have a profound impact. We’re doing everything we can to help with the humanitarian effort, and are working to manage the supply chain impacts.

“We have a clear long term focus on keeping prices low and we remain committed to helping everyone eat better, whatever the external environment may bring.”

Cost pressures in the hospitality sector are rising too. Whitbread, which runs the Premier Inns hotel chain, has warned that cost inflation this financial year is now expected to hit around 8%-9%, which is 1% higher than previously guided.

Whitbread says it will use its ‘pricing power’ to offset these higher costs, along with cost efficiencies, and growing its estate.

The firm has also returned to profit last year, with a pre-tax profit of £58.2m – compared with a loss of around £1bn – due to the easing of Covid-19 restrictions.

The agenda

• 10am BST: Eurozone consumer and economic confidence report
• 10.30am BST: Sarah Breedon, Bank of England’s executive director of Financial Stability Strategy, gives a speech at Lancaster University
• 1pm BST: German inflation data for April.
• 1.30pm BST: US first-quarter GDP report
• 1.30pm BST: US weekly jobless claims