Rising prices felt by corporations, consumers alike as commodities surge globally

Published 24 Jul,2021 via Arab News - Economy RIYADH - Tired of traveling from store to store in search of the best prices, Renad Wafi is increasingly shopping online for basic items in an attempt to balance the household budget.

“Prices of basic commodities in Saudi Arabia are noticeably rising,” said the Riyadh-based mother. “They fluctuate all the time between the various points of sale and continue to rise across all categories from food to cleaning and personal care products. As a result, people are looking for alternatives online, and I’m one of them.”

A similar story could be heard this week at the headquarters of Unilever, one of the world’s biggest consumer goods companies, which saw a strong set of first-half financial results overshadowed by concerns over inflation.

Underlying sales for the maker of Dove soap rose 5 percent in the three months ended June 30, above the 4.8 percent forecast by analysts. However, rising prices of everything from crude to palm and soybean oil made the company cut its operating margin outlook to “about flat” from slightly up earlier and flag greater uncertainty surrounding that forecast.

Its shares slumped 6.1 percent, wiping almost £7 billion ($9.6 billion) from its market capitalization.

To blame are soaring commodity prices. Last week, wheat posted its biggest weekly gain in four years as parched conditions for North American spring wheat and adverse weather in Europe stoked concern about global supplies amid a surge in demand as the global economy begins to reopen.

In May of this year, wheat futures were trading at the highest price since 2013 on the Chicago Board of Trade (CBOT) and have only fallen slightly since. It’s a similar story for soybeans, which almost doubled in price in the 12 months to May and have eased only about 12 percent over the past two months.

In fact, agricultural commodities from coffee to corn to palm oil are all trading near multi-year highs.

Those costs are being passed on to food and consumer goods producers, such as Unilever, to store owners and ultimately to consumers.

“I can say that prices have been increasing in the past six months; the most impacted goods are soft drinks and cigarettes, as we are finding issues with maintaining supply and stable prices,” said Radhi Qanadili, a grocery store owner from Jeddah.

“I would fairly say that there are no signs of stability or decline in prices anytime soon” he said. “Prices are more likely to keep rising for the next six-to-nine months from now.”

Since Unilever issued its guidance in the first quarter, crude oil prices had risen 12 percent, soybean oil 21 percent, while freight and transportation costs had risen and 4 percent and 7 percent, respectively.

Unilever said that besides accelerating price hikes, it was introducing pack changes and narrowing promotions in the second half in response to rising costs.

The company raised prices by 1.6 percent in the second quarter. In June those were up to 2.2 percent.

Saudi inflation accelerated to 6.2 percent in June, the highest this year, driven by the cost of fuel and food. It compares to 5.7 percent in May, according to data from the General Authority for Statistics (GSTAT).

Transport prices gained 22.6 percent and food and beverages prices rose by 8.1 percent, the national statistics body said.

Saudi Arabia announced a price cap on fuel earlier this month, to support local consumption and economic growth, after oil prices hit multi-year highs this year.

“Some say that this inflation is part of the recovery process after the pandemic and that prices will start returning to normal by the end of this year,” said Renad Wafi in Riyadh. “Although I wish to, I’m not sure if I can be this optimistic, because we are halfway through the year, and nothing has changed yet.”

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