Qantas, Coca-Cola, Ingham’s and Domino’s Pizza among companies to warn of higher prices
Some bowls clubs are now charging $35 for a classic chicken schnitzel and chips, and a swag of other big names have flagged price increases too.
Some of Australia’s best known brands have dashed hopes the cost of living crunch is nearing an end, warning customers to brace for more price hikes this year.
From the humble chicken dinner to the long-awaited overseas holiday, prices are expected to continue to rise as companies look to pass on higher costs to their customers.
Companies including Qantas, Coca-Cola, Ingham’s and Domino’s Pizza have all indicated in recent days their plans to raise prices as higher costs hit their bottom line.
The warnings come as the Reserve Bank mulls another interest rate rise in March as it looks to rein in headline inflation.
Most economists believe the official inflation figure has hit its peak, reaching a three decade high of 7.8 per cent in the 12 months to December.
But that’s not the message coming out of corporate Australia, where higher costs are continuing to bite.
Groceries
Shoppers continue to be slugged at the checkout, according to recent figures from UBS, which showed prices at the two majors – Coles and Woolies – surged 9.2 per cent in 2022, ahead of the headline inflation rate of 7.8 per cent.
UBS analyst Shaun Cousins tracked the prices of more than 60,000 items and found that food inflation was steepest in the fresh food category, led by dairy and meat.
Coles and Woolies have both seen shoppers switch to cheaper meats, from beef to white meat such as chicken, or pick cheaper cuts of steak as well as much cheaper mince.
Canned and frozen foods are also becoming more popular items.
Chicken
A bowls club made headlines for charging customers $35 for a classic chicken schnitzel and chips. And news from the country’s biggest poultry producer Ingham’s this week suggests the crazy prices could get worse.
Ingham’s is looking to raise prices again, with higher feed and other business costs driving up the price shoppers will have to pay for an Aussie dinner favourite.
Ingham’s – whose chicken products are found in supermarkets, butchers, restaurants and fast-food chains – recently told shareholders it was in “active discussions” to secure further price increases following a spike in feed, labour, fuel and packaging costs.
The company said the cost of chicken feed alone had increased by 29.6 per cent.
Coca-Cola
The soft drinks giant revealed it would hike prices across its range – including Coca-Cola, Fanta, Sprite and Monster Energy – to cope with rising costs across its bottling operations.
General manager Peter West said the price rises would be “moderate” this year, following an earlier hike last year. He also revealed discounting for larger packs of cans had slowed.
While some believe inflation in Australia is nearing its peak, Mr West cast a worrying outlook for customers, saying “we’ve not seen the bottom of anything yet so we just continue to see inflationary periods”. That means more pain could lie ahead.
Pizza
A move by Domino’s Pizza to hike prices and place surcharges on deliveries didn’t go down so well with customers, with the fast-food chain this week reporting a crash in sales.
The company admitted it mishandled a round of price hikes designed to offset higher costs within its business, which were growing at double digit rates.
It pledged to fix the pricing problem and win back customers.
Transport
Motorists in the eastern states are being slugged with record hikes in toll charges.
The country’s largest toll road group Transurban, which operates toll roads in Victoria, NSW and Queensland, reported its strongest revenue growth on record in the six months to December.
The reason? Its toll charges are linked to headline inflation figures, meaning when prices go up across the economy, motorists face higher costs on the road.
Travel
Qantas boss Alan Joyce this week blamed higher costs and a surge in demand for the elevated cost of airfares, warning prices were unlikely to return to pre-Covid levels in the short-term.
Mr Joyce said airfares were 20 per cent higher than pre-Covid-19 levels because fuel was 65 per cent more expensive.
In December, Australia’s consumer watchdog warned airlines the price of their domestic airfares would be monitored after a report showed the cost of flying had soared well above pre-pandemic levels.
Mr Joyce warned this week that while ticket prices would “moderate”, fares would remain “significantly above 2019 levels” into 2024.
Mr Joyce said international fares would eventually fall as overseas airlines increased capacity on Australian routes.
Insurance
Macquarie warned this month insurers were likely to continue lifting premiums for up to 18 months as the major providers respond to a string of severe weather events, supply chain issues and rising costs including labour and parts.
Home insurance premiums leapt almost 8 per cent in the past year, according to Macquarie, while premiums across commercial lines for small and medium-sized businesses were up 13.9 per cent.
IAG recently revealed it was planning a 10 per cent hike to its premiums, while competitor QBE is also planning to increase its prices in a bid to keep up with inflation. It said price rises would continue as inflation was likely to persist.
Housing
Following a string of interest rate rises from the Reserve Bank, RateCity has calculated that the average borrower with a $500,000 loan is likely paying an extra $908 a month since rates started to rise last May.
For a $750,000 loan, the latest rate increase means an extra $1362 a month.
The RBA expects more than 800,000 households will fall off fixed rates on to more expensive variable rates this year.
The news isn’t much better for renters, with St George bank warning rents could lift by up to 11.5 per cent this year as landlords look to pass on rate hikes.
The year ahead
AMP chief economist Shane Oliver said while inflation would trend downwards over the course of the year, prices were still likely to rise at above historic levels as companies looked to recover higher costs since the onset of Covid-19.
“As the year goes by that (inflation) rate will slow down towards 4 per cent but that obviously still means we’re going to be getting hefty price rises flowing through,” he said.
“As we’ve seen in the company reports, companies are still putting through price increases based on cost increases they saw last year and the desire to recover margins, but I think the rate of increase will start to slow.
“I was a bit surprised that companies, the evidence suggests, are still passing those costs through, which suggests the initial slowdown in inflation will be pretty mild.
“And it also reinforces the Reserve Bank’s assessment that there’s a risk that inflation may not slow down. It’s hit its peak but it may not, so obviously the corporate comments add to that risk.”
As part of the latest round of company profit reports this month, Qantas, Coca-Cola, Ingham’s and Domino’s Pizza were among the companies to warn of higher prices this year, all blaming ongoing cost increases ranging from fuel to feed, labour and supply chain costs.
However there are signs consumers are pulling back on their spending as the pressure on household budgets intensifies.
While wages grew at a ten-year high of 3.3 per cent last year, according to the latest ABS figures, real wages declined by a record 4.5 per cent.
JB Hi-Fi recently reported sales growth had slowed, and had stalled completely at its Good Guys stores, as consumers feel the pinch from surging inflation and nine consecutive interest rate rises.
Nick Scali said it remained “cautious” amid concerns of a downturn in consumer spending.
Mr Oliver said the expected slowdown would limit the ability of companies to continue hiking prices.
“We are seeing more companies warn that things are going to be a bit softer going forward,” he said.
“There are signs at the edges that consumer spending is starting to fray a little bit, and as the year goes on I think that will probably continue.
“And so the ability of companies to put the price rises through will decline or they might have to settle for lower price rises than they’re currently planning.”
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