Nestlé, the world’s largest food and beverage firm, announced this week that it would increase prices on goods due to inflation.
Last month, consumer prices increased 5.4 percent in June from a year earlier, the biggest monthly gain since 2008.
Nestlé CEO Mark Schneider told reporters Thursday that “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.”
Although Schneider echoed the Federal Reserve in saying he believes the inflation will be “transitory,” the firm will have to raise prices by about 2 percent to offset cost increases of 4 percent. Nestle hiked prices by 1.3 percent during the first half of 2021.
“We consider this as transitory,” he added. “For 2022 and beyond, we expect to return to steady and moderate increases in our underlying trading operating profit margin.”
In elaborating, CFO Francois-Xavier Roger said Thursday that since the start of 2021, the firm has seen cost inflation relating to packaging materials, freight costs, and agricultural commodities.
Schneider further told journalists that the company is “on top of the situation and my raising this issue should not give you alarm. I just wanted to caution against excessive expectations on the margin. So, please stay close to our guidance level during this turbulent time.”
“We’re in a period now, which started last year with the onset of the pandemic, and which will probably last another year or so,” he added, “where you will have pretty strong gyrations from one quarter to another on top line, gross margin and bottom line … this will not be your normal year-over-year, steady comparison situation.”
Nestlé owns a number of brands worldwide and in the United States, including Toll House, Nescafé, Cheerios, DiGiorno, Hot Pockets, Dreyer’s, and hundreds more.
Earlier this week, Federal Reserve chair Jerome Powell said U.S. economic recovery is on track despite a rise in COVID-19 “Delta” infections.
“It will have significant health consequences” in the areas of the country where outbreaks are intensifying, Powell said. Yet in the prior waves of CCP (Chinese Communist Party) virus infections “there has tended to be less in the way of economic implications … It is not an unreasonable expectation” that would remain the case this time, he added.
“It seems like we have learned to handle this,” with progressively less economic disruption, Powell said, even as he acknowledged a fresh outbreak might to some degree slow the return of workers to the labor market or disrupt planned school reopenings in the fall.
Reuters contributed to this report.