With energy prices rising due to the Iran war, pressure is mounting on grocery bills as well. Some global corporations have already announced product price hikes, citing rising expense.
On the 5th (local time), the Financial Times (FT) in the United Kingdom reported, "If the Middle East war does not end quickly, warnings are emerging among executives and analysts that overall inflation could spread beyond gasoline prices," adding, "This is because the hit corporations are taking from a surge in energy expense is becoming increasingly clear."
According to FT analysis, about 10% of roughly 300 S&P 500 corporations that recently released earnings said they have already raised prices because of the war or that further hikes are inevitable if energy expense remain elevated. In U.S. corporations' first-quarter earnings releases, mentions of "pricing action" and "passing on costs" increased to the highest level since Russia's full-scale invasion of Ukraine in 2022.
In the United States, United Airlines, Colgate-Palmolive, and 3M have announced price hikes to defend margins. In Europe, Reckitt Benckiser, the maker of Dettol, said it is reviewing price increases as a way to offset rising expense, signaling a broadening move toward price hikes across global corporations.
This trend stems from disruptions to vessel traffic in the Strait of Hormuz, a narrow waterway through which about 20% of the world's oil supply passes. The strait is a key route for liquefied natural gas (LNG), plastic resins, aluminum, and more, and traffic disruptions have sent energy prices soaring. In fact, Brent crude, the international oil benchmark, spiked to $126.41 per barrel at the end of last month, a record high since the conflict began.
The oil surge has fed into higher jet fuel prices, hitting the airline industry directly. U.S. low-cost carrier (LCC) Spirit Airlines, unable to withstand the expense burden, decided to shut down earlier this month, and Southwest Airlines, the largest U.S. low-cost carrier, warned through Chief Executive Bob Jordan that fare hikes are inevitable if fuel prices stay at current levels. Jordan said, "In an environment of significant geopolitical uncertainty, the company's business model is being put to the test."
The impact is spreading to prices of manufactured goods as well, because plastics used in packaging and polyester fiber for clothing rely on oil and natural gas as key inputs. Reuters said, "The energy price surge from the Iran war is affecting global supply chains, leading to higher raw material prices for chemicals and plastics and increased manufacturing and transport expense."
Data also show that U.S. grocery prices have already been affected by the war. According to data analytics firm NielsenIQ, the average price of groceries sold at stores across the United States—from Walmart to CVS pharmacies—rose 2.9% in the four weeks through Mar. 28 from a year earlier after the conflict broke out.
Experts say inflation from a blockade of the Strait of Hormuz is only in its early stages. Mark Malek, chief investment officer (CIO) at U.S. financial services corporation Siebert Financial, told Business Insider that "higher prices at the pump are just the beginning," adding, "The inflation that actually hits the household emerges gradually in everyday products." He added, "The second wave of inflation appears with a lag and will steadily squeeze the household budget across items such as groceries, trash bags, prescription drugs, and airfares."