Some European firms may reverse last year's big price hikes
09/02/2023 06:00
(Repeats Feb 8 story with no changes to text)
By Joice Alves and Padraic Halpin
LONDON, Feb 8 (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 SKG.I 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 OVS.MI 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 TRNLTTFMc1 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 AKZO.AS 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.
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Europe's gas rollercoaster https://tmsnrt.rs/3YwcNvM
Brent crude volatility https://tmsnrt.rs/3YwfcXk
Shoppers to face fresh price hikes as stores, suppliers pass on
costs urn:newsml:reuters.com:*:nL4N34M2R0
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(Reporting by Joice Alves in LONDON, Padraic Halpin in DUBLIN
and Olivier Sorgho in GDANSK;
Writing by Josephine Mason, editing by Emelia Sithole-Matarise)
((Josephine.Mason@thomsonreuters.com; +44 207 542 7695; Reuters
Messaging: josephine.mason.reuters.com@reuters.net))