LONDON — Top executives at multiple European blue-chip companies have told CNBC that supply chain problems, labor shortages and inflationary pressures will run for longer than policymakers are expecting.
The most recent inflation prints have done little to assuage concerns about stickier inflation. The U.S. consumer price index jumped 6.2% in October from a year ago, official figures revealed on Wednesday, the sharpest annual rise for 30 years and vastly outstripping the U.S. Federal Reserve’s target.
Chinese producer price index inflation surged 13.5% annually in October, while U.S. PPI grew at 8.6% annually, equaling an all-time record.
Companies around the world are battling supply chain bottlenecks as a post-pandemic spike in demand converges with industrial production struggling to catch up after lengthy Covid-induced shutdowns.
Ahold Delhaize Chief Financial Officer Natalie Knight told CNBC Wednesday that although she was confident of the Belgian-Dutch grocer’s strategy to deal with such pressures, they showed no sign of abating.
“I think what we are definitely seeing is inflation is picking up, but what I would also say is when you look at food, it is a smaller share of wallet than some other categories, and we definitely see other areas where inflation looks a lot higher than in our industry,” Knight said.
Knight suggested rising consumer prices will continue through the fourth quarter. She said Ahold Delhaize was working to ensure price increases were not passed on to customers.
“We’re working with the vendors, we’re working with economists making sure we’ve got the right ‘should cost’ models, so that we’re able to really only accept the prices that are absolutely necessary,” she added.
On labor, Knight said the company had noticed a divergence between a robust supply in Europe, which had normalized to around pre-Covid levels, and the U.S., where there are “bumps in the road” with regards to recruitment. She also said there were certain “pressure points” across the labor market, particularly in transportation and distribution.
“I think our vacancy rates are pretty consistent, but we are working a lot harder to keep them that way,” Knight added.
Policymakers across major central banks have largely held the line that the period of high inflation in their respective economies, and the global supply problems feeding into it, are “transitory.” However, many companies have warned of increased cost pressures in their third-quarter earnings reports in recent weeks.
Managing supply problems a ‘core competence’
Supply chain woes have been exacerbated in different parts of the world by various geopolitical factors. For instance, power shortages in China have affected production in recent months, while in the U.K., Brexit has been a big contributor to a shortage of truck drivers and agricultural workers.
However, concerns over the persistence of these problems were echoed by Siemens Energy CEO Christian Bruch, who told CNBC Wednesday that the industrial world is going to be dealing with this “for quite some time.”
“It is going to be way into 2022 and honestly, my belief is managing the supply chain will be something which will be with us for [a long time],” he said.
“It will be a really core competence of companies like us, making sure that you can manage these scarcities and issues on the supply chain, not only on the material but also on the logistics side.”
Bruch said the energy industry in particular would need to improve its management of shortages, given the increased demand for raw materials needed for the promised transition toward renewables.
‘Once in two-decade inflationary pressure’
In the U.K., inflation slowed unexpectedly to an annual 3.1% in September, but analysts expect this to be a brief respite after August’s 3.2% climb was the steepest since records began in 1997.
The Bank of England expects consumer price inflation to top out at 5% before moderating toward the end of 2022 and into 2023, but Standard Chartered CEO Bill Winters recently told CNBC that his bank’s recent experience points to higher inflation becoming structural.
“I see wage pressure pretty much everywhere we go, we see labor shortages, and of course there’s friction costs, that should iron themselves out over time, there’s energy prices, which I think are going to remain high for quite some time because economic activity is strong,” Winters said.
“That to me says that inflation expectations are becoming ingrained.”
Following Unilever‘s results in late October, CEO Alan Jope said the British consumer goods giant was witnessing “once in two-decade inflationary pressure.”
“We are seeing commodity inflation across really every type of input cost that we have — agricultural commodities, petrochemical commodities, paper and board, transport, logistics, energy, labor — all are moving in an upward direction,” he said.
“Our first reflex is to fire up our productivity programs and try to save as much money as we can and avoid taking price, however this is once in two-decade inflationary pressure and so we have raised prices.”