Costly beer and luxury cars? Consumers and profits fine with that

Consumers seem undaunted by higher prices of everything from luxury cars to beer, letting companies like Anheuser-Busch 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 per cent 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 exacerbated 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 impact of surging food inflation on its profitability. Procter & Gamble and Danone also started the year with price increases of about 5 per cent.

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 Chief Executive Officer 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 last year, he said.

Home prices

Even UK home builder Barratt Developments said on Thursday that it’s 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.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor