Treasurer Josh Frydenberg warned businesses against forcing through opportunistic price hikes as a leading retail analyst said shoppers faced increases of 10 per cent-plus on a range of goods in coming weeks.
Coles and Woolworths on Monday left open the door to rejecting fruit and vegetable manufacturer SPC’s plans to increase the price of its products by 10 to 20 per cent, potentially setting the scene for protracted negotiations over who bears the hit from growing inflationary pressures.
While acknowledging prices would rise due to pandemic supply chain disruptions and geopolitical tensions including Russia’s invasion of Ukraine, Mr Frydenberg warned against businesses exploiting the situation.
“This doesn’t represent an opportunity for businesses to opportunistically put up their prices,” Mr Frydenberg told The Australian Financial Review.
Unleaded petrol prices spiked to $2.20 a litre in recent days as global oil prices spiked, and CommSec tipped pump prices could lift to $2.50 in coming weeks if war in Ukraine becomes protracted or intensifies.
Ahead of an election set to be dominated by cost of living, the Treasurer said the government was doing what it could to support households, including with tax cuts. Prime Minister Scott Morrison is facing growing pressure to lower the fuel excise to help households with spiralling prices.
SPC chief executive Robert Giles last week wrote to supermarkets advising them of his intention to increase the price of about 100 household staples including SPC baked beans and spaghetti, Ardmona canned tomatoes and Goulburn Valley due to inflation pushing input costs higher.
Australia’s two supermarket giants both declined to comment on the specifics of SPC’s correspondence, but signalled they could reject any increases on reasonableness grounds.
With supermarkets aware of SPC’s intention to increase its prices, they have 30 days to accept, reject or propose changes to the proposal. If they reject the increases outright, SPC can force them into negotiations under the Food and Grocery Code of Conduct administered by the competition regulator.
MST Marquee analyst Craig Woolford is tipping noticeable retail price rises from March onwards – in some categories prices will be 10 per cent or more but across the board he expects 3 per cent to 4 per cent inflation.
“While food inflation has been higher than 4 per cent five times over the past 20 years, non-food retail has rarely seen such inflation. The last meaningful rise was the introduction of GST in June 2000,” he said.
Mr Woolford noted the rate of inflation that is likely to eventuate should be positive for retail sales growth in a year when volume growth may be difficult to achieve.
Food companies like The Arnott’s Group – which makes well-known brands like Tim Tams and Shapes – are facing surging input costs for sugar, wheat and oil. In some cases, raw materials are up over 20 per cent on 12 months ago. The price of packaging is also rising for well-known brands.
Woolworths increased the shelf price of red meat, Coke and Fanta in recent weeks, and a spokesman said it would assess price increases on their merits.
“We have an established process for assessing requests for cost increases from our suppliers and are currently reviewing the prices recently submitted by SPC,” the spokesman said.
“We never take these decisions lightly, and we will continue to work to ensure our prices remain competitive.”
Coles declined to comment on how much the chain was willing to wear on major price increases versus how much will be passed to consumers; the ultimate decision will be made on “reasonableness” grounds.
During the company’s first half results last month, chief executive Steven Cain acknowledged inflation was washing through the system.
“Obviously, if it’s a valid increase, then we accept it, and then we decide whether we pass it on or not,” he said.
But one challenge for retailers is the possible consumer backlash.
Retail price rises over 2021 were accepted by the consumer, reflecting healthy incomes and a high level of savings, but as price rises broaden and if interest rates rise, the sensitivity to price increase will also increase.
“With higher inflation there would [be] a greater shift to shop down to cheaper brands, private label or hold off all together buying,” Mr Woolford said.
Historically, the sectors with the highest negative correlation to rising petrol prices are auto, apparel, and household goods.
Jarden analysts said inflationary pressures could dent discretionary consumption by about 6.8 per cent, which would likely lead to more competition among companies to try to win market share.
Extracted from AFR