Higher Wholesale Prices Add Pressure on CPG Manufacturers

The Consumer Brands Association cautioned that high wholesale prices in the latest Bureau of Labor Statistics readout continue to pose significant cost pressures for consumer-packaged goods manufacturers.

The September Producer Price Index (PPI) rose 8.5% over last year and 0.4% over last month, doubling economists’ expectations with the largest month-to-month increase since May. For the CPG industry, key commodities are still higher than overall wholesale prices, as the food PPI rose 10.2% over last year.

“September showed ongoing cost pressures and the impact of supply chain disruptions from Hurricane Ian, renewed fears of a rail strike and oil prices that have yet to surface in the data,” said Katie Denis, vice president of communications and research, in a press release.

Key commodities continue to show wholesale prices well above last year and significantly higher than pre-pandemic norms. Diesel fuel is up 65.9% over last year, and the increase does not show the effects of OPEC’s decision to cut oil production by two million barrels a day, which is expected to result in further gas price hikes.

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High fuel costs significantly impact the CPG industry, as it makes up one-fifth of all freight transportation, said CBA.

Further, a temporary agreement to narrowly avert a national freight rail strike last month is being called into question as key rail unions have begun rejecting the terms.

A strike would lead to a shutdown of the national freight rail system, causing supply chain disruptions that would upset the availability of key inputs and cost $2 billion in lost economic output a day.

As rail unions negotiated the temporary agreement, Consumer Brands called for congressional intervention if the Biden administration was unable to oversee the adoption of a deal and has since backed legislation to fend off future rail disruptions.

In addition to supporting an array of supply chain legislative proposals that were left out of the CHIPS bill earlier this year, Consumer Brands continues to advocate for expanded labeling flexibility that allows companies to safely make necessary ingredient substitutions to keep products on shelves in the event of supply chain disruptions, such as a rail shutdown.

“With one crisis after another, efforts to strengthen the supply chain have to be at the forefront of Washington’s agenda,” said Tom Madrecki, vice president of the supply chain. “Congressional action to increase visibility and enhance federal coordination help us weather individual crises and, ultimately, ensure consumers have access to products they depend on.”