World’s Largest Food Company Will Raise Prices Amid Inflation

Nestlé, the world’s largest food and beverage company, announced it would hike prices in response to inflation.

As of June, inflation in the United States reached a year-over-year rate of 5.4%. Businesses and consumers are therefore seeking to retain their margins in the face of the diminishing purchasing power offered by the dollar.

As Nestlé CEO Mark Schneider explained to journalists on Thursday: “What we’ve seen this year is some kind of a turning point, where after several years of low inflation, all of a sudden it accelerated very strongly.”

CNN Business reports:

Schneider said he believes that inflation is transitory. But the owner of brands including Nescafe, Gerber and Cheerios said it would need to raise prices by roughly 2% to offset cost increases of 4%. Nestlé hiked prices by 1.3% in the first half of 2021.

The company can hedge against some cost increases, such as rising coffee prices, said Schneider. But it can’t avoid the rising cost of things like transportation, which puts pressure on the company’s margins.

Nestlé is not the only company to raise prices. CNN Business adds that General Electric, Unilever, and other large firms in a variety of industries are seeking to hedge against an increasingly salient inflation risk. 

Meanwhile, many businesses are selling their items in smaller packages while maintaining the same price, a phenomenon known as “shrinkflation.” For instance, Walmart’s Great Value Paper Towels did not alter prices while reducing the number of sheets per roll from 168 to 120; Frito-Lay cut the typical bag of Doritos from 9.75 ounces to 9.25 ounces; General Mills shrank its “family size” boxes from 19.3 ounces to 18.1 ounces.

A recent CNBC survey of leading CFOs revealed that at least one-third will be forced to raise prices if inflation continues. No financial executive said that they trust the Federal Reserve to effectively manage inflation over the next year.

Consumers are likewise feeling the effects of rising prices. 

According to a survey from accounting firm KPMG, Americans are forecasting a 9% year-over-year increase in their back-to-school spending. Last year, they anticipated spending $247; this year, they anticipate spending $268.

Despite a strong economic recovery from COVID-19 and the lockdown-induced recession, inflation is counteracting a hike in Americans’ wages. The Bureau of Labor Statistics found that “average hourly earnings” rose by 3.6% over the past year. After considering inflation, however, “real average hourly earnings” have diminished by 1.7%.

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