Food inflation is returning in force, with Unilever the latest company to forecast price growth this year.
The Anglo-Dutch group, which has seen negative pricing for five straight quarters, said Latin America had reversed course to become the first region to weather price rises.
This follows similar comments from food producers General Mills and Kellogg, the latter of which said it expected to raise prices by 200 to 300 basis points next year.
Until 2007, Britons had benefited from nearly a decade of food price deflation.
Jean-Marc Huët, Unilever’s chief financial officer, said: “As pricing turns positive by the end of the year, and will be positive for next year, that together with savings will fund input cost rises.”
Martin Deboo, analyst at Investec, said: “There has been a lot of apprehension about whether pricing power is going to come through, but I think the anecdotal evidence is that it is happening.”
Unilever’s comments came as it surprised the market with a better than expected set of third-quarter results.
Organic sales growth rose 3.6 per cent year-on-year in the third quarter while the underlying operating margin – which many analysts expected to narrow – expanded by 20 basis points.
Alex Sloane at Evolution Securities said the results “show the business model is intact and represent continued progress on all three of the priorities laid out” by Paul Polman, chief executive.
These are volume growth, which at 6 per cent in the first nine months of the year marks a 25-year record, sustainable margin expansion and progress on cash flow.
However, margins benefited from savings on overheads, some of which will reverse next quarter, and margins were lower in the emerging markets of Asia, Africa and central Europe, as well as in the Americas.
● FT Comment
Paul Polman famously dislikes the short-termism of quarterly hits and misses; investors just as famously lap them up. At the second quarter his downbeat tone sent the shares southward. In spite of Unilever’s protestations on Thursday that performance was merely “solid”, investors whooped, lifting the shares 6 per cent. Much of this is catch-up. Unilever has underperformed its peers and seen its stock derated from about 15 times forward earnings at the start of the year to 13.5 times now. The group has its issues: acquisitions it would rather forget (Slim-Fast, bought for $2.3bn) and a big but sluggish spreads business. Yet more than half of sales come from fast-growing emerging markets, injecting a welcome note of raciness to that solid performance. The catch-up is long overdue.
Additional reporting by Greg Farrell in New York
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