Reuters
Some companies in Europe have said they may unwind price hikes introduced in recent years as soaring costs of energy and other raw materials have eased, potentially providing some relief to consumers.
The projected cuts are the latest sign that inflation in the euro zone has peaked and may encourage hopes of a soft landing for the region’s economy, which have fuelled a stock market rally this year.
They are not yet broad-based though. Companies still face higher wages and borrowing costs and they may take time to translate to prices in stores while consumer goods and food producers as well as retailers pass on higher expenses.
On Wednesday, packaging giant Smurfit Kappa said it kept prices steady in the last few months of last year as input cost inflation moderated.
But prices would “inevitably” fall in the second half due to contractual terms with some customers, Chief Executive Tony Smurfit told Reuters. Any declines beyond that will depend on a continued fall in key input costs.
“We can’t control energy and waste paper. We just have to see where those actually lead us in the six months or so. If they start to reverse, then you’ll see things reversing for next year, but we have to wait and see,” he said.
Italian mass-market clothing retailer OVS said last week it plans to keep prices steady or even cut them this year as it sees inflationary pressures easing.
It is expecting a weighted average commodity decline of around 20% for the group and lower energy prices this year.
Slashing prices also reflects stiffening competition in some markets as companies struggle with waning consumer demand and households tighten budgets.
The reopening of China and the recent signs of the global economy reaccelerating may also keep commodity prices elevated at relatively high levels, Garnry said.
Even so, gas prices and crude oil futures have fallen to below levels in early February 2022 before Russia invaded Ukraine. [O/R] [NG/EU]
The blistering pace of increases in other inputs have also eased. Euro zone producer prices decelerated year-on-year in December, data showed earlier this month.
Shipping rates have tumbled amid concerns about global recession and as pandemic-fuelled import bubbles deflate in the United States and other major consuming countries.
Smurfit said the price of testliner paper, a key input cost that rose by 100 euros per tonne in the first half of 2022, has fallen by 160 euros per tonne since June. Kraftliner prices, up 60 euros per tonne in the first half, have since fallen by 120 euros a tonne.
WAGES AND BORROWING COSTS
Some companies won’t make cuts though, as they protect margins or face higher wages and borrowing costs.
Dulux paint maker Akzo Nobel said on Wednesday it would hike prices further everywhere except China to compensate for inflationary effects on wages and inland freight costs.
China was the exception due to market pressure there and an earlier easing of raw material costs.
More commoditized companies like in packaging may be under pressure to slice prices to keep market share. Firms with more pricing power, like in the luxury goods sector, are likely to hold back, said Michael Field, equity market strategist at Morningstar.
“It does signal a retreat in operating margins for firms like Smurfit, hence the negative reaction in the share price this morning,” he said. The shares fell 3.8% on Wednesday to the bottom of London’s blue-chip FTSE 100.
