P&G puts stark number on inflation

2 minute read

A display of Pampers diapers are seen on sale in Denver, February 16, 2017. REUTERS/Rick Wilking

LONDON, July 30 (Reuters Breakingviews) - Companies everywhere say their costs are rising, but Procter & Gamble (PG.N) has given a vivid warning that investors, customers and maybe even central banks should heed.

The maker of Pampers nappies said on Friday that higher commodity and freight costs would knock $1.9 billion off its earnings in its current accounting year, offset only slightly by currency movements. That’s $2.2 billion before tax, based on P&G’s expected rate.

Imagine new Chief Executive Jon Moeller, who starts in November, tries to recoup that by charging customers more. With $76 billion of sales last year, all else being equal, he’d need to increase P&G’s prices on the shelf by almost 3%. That’s higher than most developed-country central banks’ inflation targets.

All else isn’t really equal, of course. If P&G hikes prices and competitors read more don’t, it may sell fewer goods. And with a 24% operating margin, Moeller can absorb some costs. Lower profitability looks likely; difficult decisions look inevitable. (By Dasha Afanasieva)

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Editing by John Foley and Amanda Gomez

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