The latest Consumer Price Index (CPI) may not say everything about the inflation outlook as a rebound in the US economy approaches the second half of the year, but major food manufacturers like PepsiCo do.
Consumer prices increased 0.9% in June from May, accelerating from the monthly increase of 0.6% in May. The CPI rose 5.4% from a year ago, marking the largest increase since 2008. Gains were seen in everything from used cars and women’s dresses to food. The core consumer price index for June, which excludes food and energy prices, was up 4.5% from a year ago. This is the fastest increase since 1991.
“Price increases resulting from the reopening of the economy and persistent supply chain bottlenecks will keep the rate of inflation high and stable, as imbalances between supply and demand will not will be resolved only gradually, “said Greg Daco, chief US economist at Oxford Economics.
But for a more accurate picture of what could be happening on the inflation front, investors would be wise to check out the latest news from the country’s biggest food manufacturers, rather than relying solely on the CPI.
Most food producers face significant inflation in labor and transportation, and are considering further rounds of price increases until the end of the year in an attempt to protect their profits. Typically, these price increases are well ahead of the figures for the CPI and many of its components.
Here are three of the last examples.
PepsiCo
After an impressive second quarter due to resurgent demand for drinks and snacks outside the home, PepsiCo (PEP) is considering further price increases to help offset high levels of inflation linked to the recovery pandemic.
“The way we think about pricing is really a reflection of the investments we make in our brands and the innovation we have, because these are the things consumers are willing to pay more for. We believe this is related to creating value for consumers. Obviously, along with the cost pressures, it puts even more pressure on prices, ”PepsiCo vice president and chief financial officer Hugh Johnston told Yahoo Finance Live on Tuesday.
[Read more: PepsiCo expects to ‘take good, strong price increases’ this year because of inflation]
PepsiCo has beaten analysts’ forecasts for the second quarter and raised its earnings outlook for the full year, so it appears consumers have accepted the company’s price hikes. It’s unclear how they’ll react to further price increases later this year.
Conagra brands
The king of frozen foods is speeding up price hikes himself after inflation weighed on earnings in the last quarter. Adjusted operating profit margins for the quarter fell 311 basis points from a year ago, largely due to inflationary pressures, Conagra Brands (CAG) said on Tuesday. Operating profits were down in all lines of business compared to a year ago, except foodservices.
“During the fourth quarter, input cost inflation accelerated and we now expect input cost inflation for fiscal 2022 to be significantly higher than expected at the end of the third quarter. In response, we have further improved the aggressive and comprehensive action plan already in execution, which includes broad pricing. While we are satisfied with the early results, there will be a lag between the when we face higher costs and when we realize the benefits of our actions, ”said Sean Connolly, CEO of Conagra Brands.
Despite the price increases, Conagra has always been forced to reduce its profit outlook for the entire year.
For its current fiscal year, Conagra now has adjusted earnings per share of $ 2.50. Previously, he forecasted an annual profit of $ 2.63 to $ 2.73.
General Mills
The cereal and snack maker has been hesitant to say how much it has raised prices and how much it will move forward. But it is hit by inflation like its food counterparts, and is ready to do more.
“So we are very well aligned with our customers, not only on the demand environment, but also on the cost environment,” Jeff Harmening, CEO of General Mills (GIS), told investors at a earnings conference call at the end of June. “They see the same cost pressures as we do. And we have instituted awards in the vast majority of our categories and markets around the world. And while no one wanted to raise prices, we had to because the cost environment is what it is. And we found them to be understanding because they are in the same kind of boat as us. ”
General Mills’ fiscal fourth quarter adjusted operating profits fell 18% year over year, faster than the 10% decline in sales as inflation kicked in. Even with its price increases, General Mills expects full-year adjusted profit to remain unchanged and fall 2% year-on-year.
Brian Sozzi is an editor and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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