Food and beverage giants sound the inflation alarm
Major food and beverage producers are sounding the alarm bells for higher prices to come later this year.
The warning deals yet another blow to consumers who are already grappling with the largest annual price increase in 13 years.
“We expect prices to rise,” General Mills CEO Jeffrey Harmening said on the company’s fourth-quarter conference call Wednesday.
General Mills, which produces brands such as Cheerios and Betty Crocker, expects total input cost inflation of around 7% in the current fiscal year. The company is also seeing higher costs associated with securing additional capacity and logistics.
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To combat rising costs, General Mills has already increased prices for its Foodservice business. These increases are expected to occur in the second quarter and generate stronger margins in the second half.
|GIS||GENERAL MILLS, INC.||60.22||0.00||0.00%|
|STZ||CONSTELLATION BRANDS, INC.||231.42||-0.61||-0.26%|
Similar concerns about pricing pressures were shared by Constellation Brands chief financial officer Garth Hankinson during his company’s first quarter conference call, also on Wednesday. Constellation Brands manufactures Corona beer, Svedka vodka, and other alcoholic beverages.
“We expect significant headwinds in inflation to intensify in the second half of our fiscal year,” Hankinson said.
That’s when the covers for Constellation Brands disappear, leaving the company exposed to higher prices.
Hankinson noted that the depth and duration of these inflationary pressures “become more and more uncertain as the year unfolds.”
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Consumers, for their part, are already feeling the pressure of higher prices at the cash register.
Food prices rose 0.4% in May as all six major food groups in grocery stores saw increases, according to the most recent report on the Consumer Price Index from the Ministry of Labor. They increased by 2.2% year-on-year.
Overall, consumer prices rose 5% per year, the fastest since August 2008, as the U.S. economy continued to gain momentum as more states reopen after COVID lockdowns -19.
The price increases were also the result of bottlenecks and supply chain shortages caused by lockdowns aimed at slowing the spread of COVID-19 and following unprecedented fiscal and monetary stimulus measures aimed at to support the economy during its strongest post-WWII era.
The annual increase is subject to a “basis effects” bias due to the fall in prices at the start of the pandemic.
Both General Mills and Constellation Brands have indicated that it is not clear how long this period of higher prices will last.
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The Federal Reserve, meanwhile, says the recent upward pressure on prices is temporary.
However, Fed Chairman Jerome Powell conceded at last month’s meeting that inflation “could turn out to be higher and more persistent than expected.”