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Picture: GETTY IMAGES/WIRE IMAGES/DON ARNOLD
Picture: GETTY IMAGES/WIRE IMAGES/DON ARNOLD

Consumers seem undaunted by higher prices of everything from luxury cars to beer, letting companies like AB InBev and BMW boost profits despite economic threats ranging from inflation to war to China’s Covid flare-up.

AB InBev, the world’s largest brewer, on Thursday reported profit growth that was almost twice as much as analysts expected. BMW’s first-quarter earnings rose 12% on strong demand for luxury cars. Revenue at Stellantis, formed by the merger of Fiat Chrysler and Peugeot, jumped on the back of strong demand for new high-end models like the Jeep Grand Cherokee.

With costs of many raw materials flaring amid bottlenecks, companies have been testing how much they can raise prices after years of subdued inflation. Russia’s invasion of Ukraine has worsened shortages, cutting off supplies of some auto parts and cooking oils, while China’s continuing Covid-zero policy has crimped demand and added to supply-chain woes.

Nestle increased prices at the fastest rate in more than a decade during the first quarter, lifting the cost for everything from Nespresso capsules to Purina dog chow to blunt the effects of surging food inflation on its profitability. Procter & Gamble and Danone also started the year with price increases of about 5%. 

Like Budweiser owner AB InBev, brewers Heineken and Carlsberg have delivered sales growth ahead of analyst estimates, largely driven by price increases. So far, drinkers returning to bars after lockdowns have been undeterred by having to pay more, with costs of brewers’ raw materials such as aluminium and barley soaring.

“Inflation continues to move very fast and is moving above or faster than what the expectation was,” AB InBev CEO Michel Doukeris said by phone. It’s “a little too early” to gauge how resilient demand for beer will be, given most of the brewer’s price increases were implemented late in 2021, he said.

Even UK home builder Barratt Developments said Thursday that it has been able to lift prices enough to offset higher materials costs.

Carmakers have significantly increased prices after a strong rebound in demand, as a semiconductor shortage has put a lid on vehicle production. With the number of buyers looking for a set of new wheels far outstripping supply, prices have soared for new and used vehicles.

Manufacturers including Volkswagen, BMW and Stellantis have also shifted production to their biggest money-spinners, like Porsche and Audi models. This week, VW CEO Herbert Diess said Europe’s biggest carmaker was sold out of electric cars for the year in its home region and the US because of supply bottlenecks.

At the same time, carmakers are facing a price jump in everything from shipping rates to basic raw materials, a situation that’s set to remain tense as the war in Ukraine roils logistics and component production and China’s zero-Covid policies shutter plants. Passing on those increases as inflation burns through consumers’ wallets will be an uphill battle.

“Car prices still need to rise by 5%-10% and electric cars by more than 10% to compensate for current cost inflation,” Bank of America analysts including Horst Schneider wrote in a note. “Given the mounting pressure facing consumers, this may prove challenging.”

Some companies have warned of emerging strains. Last week, Unilever forecast full-year revenue growth at the top end of its forecast, though it said profitability may suffer as consumers start to cut back on purchases. The Dove soap maker has covered about two-thirds of the cost increases it’s been facing with price hikes, CFO Graeme Pitkethly said at the time. 

In some corners of the economy, European consumers are already hunting for bargains. They are buying cheaper clothes as inflation crimps household budgets, according to Zalando, the region’s largest online-only fashion retailer. 

Bloomberg News. More stories like this are available on bloomberg.com

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