Major food and beverage producers are sounding the alarm on higher prices coming later this year.
The warning deals another blow to consumers who are already grappling with the biggest annual price increase in 13 years.
“We would anticipate prices going up,” General Mills CEO Jeffrey Harmening said on the company’s fourth-quarter conference call on Wednesday.
General Mills, which produces brands including Cheerios and Betty Crocker, expects total input cost inflation of about 7% during the current fiscal year. The company also sees higher costs associated with securing incremental capacity and logistics.
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To combat the higher costs, General Mills has already raised prices in its Foodservice business. Those increases are expected to kick in during the second quarter and deliver stronger margins in the back half of the year.
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Similar concerns about pricing pressures were shared by Constellation Brands CFO Garth Hankinson on his company’s first-quarter conference call, also on Wednesday. Constellation Brands makes Corona beer and Svedka vodka and other alcoholic beverages.
“We expect significant inflation headwinds to ramp up during the second half of our fiscal year,” Hankinson said.
That’s when Constellation Brands’ hedges roll off, leaving the company exposed to higher prices.
Hankinson noted that the depth and duration of those inflationary pressures are “becoming more uncertain as the year unfolds.”
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Consumers, for their part, are already feeling the squeeze of higher prices at the checkout counter.
Food prices rose 0.4% in May as all six major grocery store food groups saw increases, according to the Labor Department’s most recent consumer price index report. They were up 2.2% year over year.
Overall, consumer prices rose 5% annually, the fastest since August 2008, as the U.S. economy continued to gain momentum while more states reopened from COVID-19 lockdowns.
Price increases were also the result of supply-chain bottlenecks and shortages caused by the lockdowns aimed at slowing the spread of COVID-19 and following unprecedented fiscal and monetary stimulus aimed at supporting the economy through its sharpest of the post-World War II era.
The annual increase is subject to a “base effects” skew due to the price decline that occurred at the start of the pandemic.
Both General Mills and Constellation Brands indicated it was unclear as to how long this period of higher prices would 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 we expect.”