Inflation is rising globally with the Office of National Statistics today reporting that the UK consumer price index rose by 2.1% in May, the first time since 2109 it has risen above 2%.
Fuel and clothing were the main drivers of the rise, with cheaper food and drink price helping to offset some of these rises.
Commodity inflation has been strong this year overall, however, as the global economy has recovered and though JP Morgan sees some levelling off, it is still predicting raw material (RM) cost inflation to be at “highly elevated” levels this year and next.
“We expect 9%/13% RM inflation in 2021E/22E for Food/HPC and 5%/18% for Beverages.
“With the sectors facing one of the most important RM inflations in a decade, and which should linger into 2022, we expect the market focus to remain on pricing realization throughout 2021 and margin pressure risks.”
That would increase pressure at Unilever (neutral) and with beer groups also in a weaker position than spirits producers.
“Spirits names broadly should be more resilient to commodity inflation given stronger ability to raise prices.”
Shares in Unilever rose 0.8% today to 4,373p.