The Producer Price Index, which measures the amount manufacturers pay for inputs including ingredients, energy and packaging, rose a seasonally adjusted 0.3% in November – bringing the unadjusted total increase for the year up 7.4%, the Bureau of Labor Statistics reported Friday.
The increase was driven primarily by a 3.3% month-over-month jump in the seasonally adjusted food index, which pushed the unadjusted year-over-year increase for final demand foods up 15.5%, according to the Labor Department.
The largest contributors to the year-over-year increase come from eggs for fresh use, which were up a staggering 244.1%, fresh and dry vegetables (up 80.6% for the year and 38% for the month), pasta products (up 32.8% for the year), roasted coffee (up 21.5% for the year) and oilseeds (up 20.8% for the year).
The price increases across food categories offset a welcome drop in the gasoline index, which dropped 6%, according to the report.
The increases across multiple food categories comes when many food and beverage manufacturers are already strained after months of inflation in the teens, which has prompted multiple waves of price increases over the past year.
Passing costs to consumers could enact a high price on manufacturers
So far, retailers have generally accepted the price hikes, acknowledging that they too are facing similar pressures in their private label productions, but that may soon change as consumers, whose spending has remained steady thanks in part to stimulus disbursed during the pandemic that padded their savings accounts, begin to pull back.
According to a new Consumer Brands Association and Ipsos poll of more than 1,000 US adults released last week, two-thirds of respondents report grocery inflation has had a very or somewhat significant impact on their household budget. And while CBA notes this is a 5 percentage point drop from August when 71% reported the same, the trade association underscores that well above half of all respondents are struggling.
In response to increased consumer strain, Walmart’s CEO last week voiced his reticence to accept additional price increases from manufacturers, especially in food categories, because consumers increasingly are voicing their frustrations about not affording as much of or the type of food that they want.
Looking beyond price hikes could include more layoffs
Many CPG manufacturers also are concerned that elasticities, which have been better-than-expected, may soon turn, and are warning investors of potentially lean upcoming quarters.
As consumer willingness to absorb ever-increasing prices wanes, CPG companies will need to decide whether they are willing to pass along additional price increases to consumers at the risk of losing market share or if they will need to tighten their belts even more internally by cutting costs and potentially higher paid staff that are not directly involved in food production.
Many CPG companies, both large (including Coca-Cola, PepsiCo, and General Mills) and small (Impossible Foods, Motif FoodWorks, and Apeel Sciences) as well as retailers and last mile delivery services (Walmart, Gopuff and Doordash) have already begun laying off select staff.
Could reinforcing the supply chain ease long-term inflation threats?
At an industry level, the Consumer Brands Association is looking for longer-term relief by encouraging the swift adoption of supply chain policies that will protect against additional disruptions that could further increase inflation or lead to shortages akin to those experienced earlier in the pandemic.
“CPG manufacturers are facing tough headwinds, including ongoing labor shortages, as they strive to meet sustained high levels of consumer demand this holiday season,” CBA vice president of supply chain Tom Madrecki said in the statement. Which is why, he added, “Consumer Brands urges Congress and the administration to enact proactive policy supply chain policies that will bolster our supply chain to withstand the ongoing challenges we’ve continued to contend with since the pandemic began nearly three years ago.”
Policy changes CBA is advocating include enhancing transportation performance, strengthening the manufacturing workforce, lowering costs and reducing trade barriers.