People are about to get rid of some of the few little joys they have left, even when it comes to necessary goods
Procter & Gamble, which sells everything, offers a perspective on the effect of inflation on consumption. First quarter results show a company whose pricing power hangs in the balance. It suggests that people are about to get rid of some of the few little joys they have left, even when it comes to necessary goods.
The firm said on Wednesday that net sales rose 1% to $20.6 billion, much of it due to higher prices. Organic sales, which exclude the effects of currency exchange and income from corporate operations, grew 7%, mainly due to a 9% increase in overcharges. The good news is that volume fell by just 3%, much of it due to reduced business in Russia. This suggests that it is maintaining some pricing power.
But not all units have the same performance. Sales grew in three of the five categories, but especially in products such as toothpaste, baby wipes and laundry detergent. Sales of toiletries fell, while beauty products remained stable. This indicates that people are not yet ready to give up their favorite brands for daily necessities, but will do so for vanity-related items.
Also, costs are rising faster than sales, due to material prices and rising freight rates. Also, the rest of the fiscal year, which ends in June, is not promising. P&G has lowered its forecast: sales will fall 1%-3% in the year, instead of 0%-2%.
That indicates that shoppers’ habits are changing rapidly, and they could soon start cutting back on necessary product purchases, either by buying generics or cutting back on what they use. Fitch said on Tuesday that the US consumer is strong but a recession is likely in 2023, something banks have also suggested. P&G shows that its effects could quickly affect consumers.
