Going Up! But Food Price Inflation Unlikely to Affect Ratings

DBRS Morningstar released a commentary titled "Going Up! But Food Price Inflation Unlikely to Affect Ratings," which reviews the key drivers behind food input cost acceleration and the response thereto from leading food and beverage companies. The commentary also provides our view of why these pricing actions are not expected to affect ratings in the near to medium term.

Key highlights:
• As the global economy transitions from lockdown to reopening and on to recovery, the inflation rate of food input costs is accelerating. This phenomenon reflects the unabated rise in commodity prices and the soaring costs of packaging materials and freight, among other factors.
• In consequence, leading food and beverage companies have increased their prices or have warned of their intention to do so.
• But consumers are currently less price sensitive because of pent-up demand and healthy wallets. That said, during extended periods of inflation, consumers are more sensitive to changes in the price of high-value products than of basic food staples. Furthermore, a sharp increase in food prices may influence food consumption at home versus away from home.

“DBRS Morningstar does not expect to take any rating actions on Food Companies in its ratings portfolio solely as a result of food price inflation in the near to medium term,” said Aarti Magan, Vice President, Consumer & Retail. “This view is based on our expectation that Food Companies will be able to—at the least—protect their gross profit dollars through price increases and indeed maintain or even grow their earnings in the near term.”