Josh Frydenberg warns of ‘opportunistic’ price hikes
Ahead of an election expected to be dominated by cost of living concerns, 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 cut fuel excise duties to help households cope with soaring prices.
Last week, SPC chief executive Robert Giles wrote to supermarkets informing them of plans to raise the price of around 100 household staples, including SPC baked beans and spaghetti, Ardmona and Goulburn Valley canned tomatoes due to inflation driving up input costs.
The two Australian supermarket giants both declined to comment on details of the CPS correspondence, but said they could reject any increases on reasonable grounds.
Since supermarkets are aware of SPC’s intention to raise prices, they have 30 days to accept, reject or propose changes to the proposal. If they reject the increases outright, the CPS can force them into negotiations under the Food and Grocery Code of Conduct administered by the competition regulator.
MST Marquee analyst Craig Woolford predicts notable retail price increases from March – in some categories prices will be 10% or more, but overall he expects inflation of 3% to 4%.
“While food inflation has been above 4% five times in the past 20 years, non-food retail has rarely seen such inflation. The last significant increase was the introduction of the GST in June 2000,” he said.
Mr. Woolford noted that the rate of inflation likely to occur 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 rising input costs for sugar, wheat and oil. In some cases, commodities are up more than 20% from 12 months ago. The price of packaging is also increasing for well-known brands.
Woolworths has raised the selling 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 evaluating cost increase requests from our vendors and are currently reviewing prices recently submitted by SPC,” the spokesperson said.
“We never take these decisions lightly and will continue to work to keep our prices competitive.”
Coles declined to comment on how much the chain was willing to bear on major price increases versus how much will be passed on to consumers; the final decision will be made on grounds of “reasonableness”.
During the company’s first-half results last month, chief executive Steven Cain acknowledged that inflation was creeping into the system.
“Obviously if it’s a worthwhile increase, then we accept it and then we decide whether we pass it on or not,” he said.
But a challenge for retailers is the possible reaction of consumers.
Retail price increases in 2021 have been accepted by the consumer, reflecting healthy incomes and a high level of savings, but as price increases become more widespread and if interest rates rise, sensitivity to price rise will also increase.
“With higher inflation, there would be [be] a greater tendency to buy cheaper brands, private labels or to suspend all purchases, ”said Mr Woolford.
Historically, the sectors with the highest negative correlation to rising gasoline prices are autos, apparel and household goods.
Jarden analysts said inflationary pressures could reduce consumer discretionary by about 6.8%, which would likely lead to more competition between companies to try to gain market share.