European companies are pushing up prices as supply disruptions lift costs and hamper their ability to match surging demand, said executives gathered for a conference this weekend in southern France.
The bosses of industrial firms including tire company Michelin and construction materials producer Saint-Gobain say they’re facing scarce supplies, transport bottlenecks and staff shortages in the wake of the pandemic, and that they expect consumer-price inflation to pick up as a result.
“We usually have one or two operational crises to handle at a time on supplies -- right now we have 23,” said Florent Menegaux, CEO of Michelin, told Bloomberg TV. “The entire supply chain has been disturbed.”
Florent Menegaux
Photographer: Marlene Awaad/Bloomberg
The concerns raised at the annual Aix-en-Provence conference highlight the uncertainty surrounding Europe’s rebound from the deepest peacetime recession in a century.
Shops, restaurants and leisure facilities are finally reopening as vaccinations gain pace across Europe, but uneven progress in combating the coronavirus around the world means supply chains are damaged and workers hard to find.
European Central Bank President Christine Lagarde, who attended the conference, told France Inter radio that while the euro-zone economy is “clearly in a period of recovery” and may reach its pre-pandemic size sooner than expected, current price pressures are “mostly transitory.”
Still, ECB Executive Board member Isabel Schnabel noted upside risks to inflation in a speech in Germany on Saturday -- though said that may be necessary to escape from years of weak prices and low growth. Dutch central bank Governor Klaas Knot said he worries that policy makers may be underestimating the risk of too-high inflation becoming entrenched.
French Industry Minister Agnes Pannier-Runacher said in a Bloomberg TV interview that pricing and shipping delays bear close monitoring.
“We have some factories that have to slow down their production, they have a huge backlog, but they don’t have the parts to produce.”
Read more: ECB’s Schnabel Says Temporary Inflation Overshoot ‘Necessary’
Michelin has raised tire prices twice since the start of the year, Menegaux said, noting that the price of shipping containers between Singapore and the U.S. has jumped to about $9,800 currently from $2,400 in 2019. “In the end, customers will pay,” he said.
Benoit Potier
Photographer: Jason Alden/Bloomberg
Air Liquide SA Chief Executive Officer Benoit Potier said the bottlenecks will take as long as two years to work themselves out.
“This goes much deeper than just pent-up demand,” said Benoit Bazin, CEO of Saint-Gobain. He’s had to make quick changes to supply chains to keep factories operating, at one point importing from Indonesia a product that was temporarily unavailable near a plant in Texas.
Staff and Materials
“It was expensive, but we couldn’t do it otherwise and this is creating inflation,” he said. “The big issue this year is availability, both of staff and raw materials.”
Demand is also being sustained by governments’ stimulus plans, including the European Union’s 800 billion-euro ($949 billion) recovery fund, which is focused on making the post-pandemic economy greener and more digitized.
The French government is pouring incentives into renovating buildings to make them more energy efficient. Bazin said it takes six to nine months to book builders in France now, and that the situation will likely be prolonged as Europe’s climate goals lead to a doubling in the rate of renovations this decade.
Some companies fear they’ll suffer even more as they struggle to pass higher costs onto customers.
Stephane Richard, chief executive officer of Orange SA, gestures while speaking at the Viva Technology conference in Paris, France, on Thursday, May 16, 2019. Donald Trump’s latest offensive against China’s Huawei Technologies Co. puts Europe in an even bigger bind over which side to pick, but France’s President Emmanuel Macron is holding the line.
Photographer: Nathan Laine/Bloomberg
Orange SA Chief Executive Officer Stephane Richard told Bloomberg News on the sidelines of the conference that tight competition in telecoms means it has to absorb cost increases.
“Inflation to us is yet another constraint that pushes us to be more productive, to reduce our costs,” he said. “Inflation isn’t good news for the telecommunications sector.”
— With assistance by Caroline Connan, Ania Nussbaum, Alexandre Rajbhandari, and Samy Adghirni
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