The prospect of higher price inflation could significantly impact a retailer’s sales, earnings and valuation over the next three years. In Issue 2 of Price Watch, we analyse the impact price inflation has on supermarkets and non-food retailers and assess the likely volume response to price rises. The good news is even in non-food retail, price inflation 2-3 percentage points higher than average will lead to better sales, earnings and a PE re-rate.
Retail price inflation accelerated in the December 2021 quarter, albeit the increase was not uniform across all categories. Red meat, health & beauty, hardware, furniture and auto parts all had high inflation, while fruit, appliances and clothing prices all fell year on year. Supermarket inflation only accelerated by 30bp in the quarter. We expect more noticeable price rises in categories like supermarkets, sporting goods and electronics in the first-half of calendar 2022.
Pricing still elevated compared with pre COVID-19 levels
27 October 2021
On the surface, Australian retail price inflation for the September 2021 quarter eased back. However, significant volatility in pricing in 2020 can make it misleading. Over the past two years, pricing is elevated in electronics, hardware and furniture and slightly above average in grocery. Prices are lower in clothing and footwear. The increase in input costs is likely to lead to higher price inflation over the next six months in our view.