Unilever hikes prices at fastest rate since 2012 as inflation bites

Unilever Plc increased prices by the most in almost a decade, pushing rising raw material costs onto consumers and compensating for a decline in shipments in southeast Asia due to Covid-19 outbreaks.

The maker of Lifebuoy soap and Oxo beef stock said it increased pricing by 4.1% in the third quarter, the fastest rate since the start of 2012. Chief Executive Officer Alan Jope forecast at least another 12 months of inflationary pressure.

“Peak inflation will be in the first half of 2022, and it will moderate as we move towards the second half,” Jope said in a Bloomberg Television interview.

Rivals from Procter & Gamble Co. to Nestle SA to Danone SA, have all warned of strained supply chains and soaring commodity costs. Unilever faces an acute risk that price increases may lead consumers to switch to cheaper products. The company’s shipments already unexpectedly declined in the third quarter.

About 20 billion euros worth of annual raw materials and packaging costs and 3 billion euros worth of annual logistics costs have been impacted by inflation, Chief Financial Officer Graeme Pitkethly told reporters. Unilever has been suffering from higher prices for commodities such as palm oil, soybean oil and crude oil derivatives including resin, as well as shipping costs.

“We continue to responsibly take pricing and that’s in relation to the very high levels of inflation we’re seeing,” Pitkethly said. Inflation in the consumer-goods industry is in the high teens, with Unilever seeing an slightly lower impact due to its negotiating power, he said.

Inflation could be higher next year and the company may have to deal with spot pricing as its hedges expire, the CFO said. Unilever is seeking to offset some of the impact through efficiency measures, and the company expects to generate slightly more than its annual target of 2 billion euros ($2.3 billion) of savings in 2021.

The stock was little changed at 8:31 a.m. in London. The shares have fallen 9.8% this year, heading toward their biggest annual drop since the financial crisis.

A steep decline in demand in the important market of southeast Asia offset stronger performance in the U.S., China and India. Vietnam was especially impacted by Covid-19 and was locked down for most of the quarter, with the army delivering food supplies to residents. Southeast Asia was responsible for two-thirds of the 1.5% decline in third-quarter volume, Pitkethly said on a call with reporters.

Sales rose 2.5% on an underlying basis in the third quarter. Analysts expected growth of 2.6%.

-With assistance from Lisa Pham.