Morgan Stanley: Cost pressures diverge across European consumer staples, with household and personal care expected to face the greatest strain in 2027

How has the cost index changed recently?

As of September, Morgan Stanley’s European consumer staples commodity cost index fell 0.1% month over month but was still up 6.8% year over year; the index was approximately 40%–45% above its pre-pandemic 1-year, 5-year and 10-year averages.
By sector, the food cost index fell 0.2% month over month and rose 3.5% year over year; household and personal care rose 0.2% month over month and 11.3% year over year; beverages fell 0.4% month over month and rose 6% year over year.
Individual raw material prices moved in different directions: ethylene, European natural gas and German milk powder rose 27%, 16% and 10% month over month, respectively, while wheat, corn and aluminium fell 12%, 11% and 7%, respectively.

Assuming spot prices remain at the levels used in the report’s calculations and accounting for hedging lags, Morgan Stanley expects overall consumer staples raw material costs to rise by approximately 1.1% in 2026, including a 2.3% increase for household and personal care, with little impact on food and beverages.
In 2027, the bank expects overall input costs to rise by approximately 2%, with household and personal care and beverages rising 5.2% and 3.4%, respectively, while food falls 2.6%. The modest overall increase for the sector therefore masks differences in the direction of costs faced by individual companies.
These differences are also evident in current raw material prices: plastics, energy, aluminium, edible oils and grains are up year over year, while coffee, sugar, milk and eggs remain below prior-year levels.

Morgan Stanley estimates the theoretical impact of price changes on margins based on each company’s estimated main raw material costs as a proportion of sales. Taking forward purchasing and hedging into account, the model assumes a two-quarter lag for household and personal care and a four-quarter lag for food and beverages.
On this basis, the theoretical margin drag from raw material changes in 2027 is 260 basis points for Henkel and 230 basis points for Unilever, respectively, above the 90 and 70 basis points in 2026; for beverage company Carlsberg, the drag widens from 40 to 170 basis points.
Differences between companies are also pronounced: the model estimates that raw material changes will provide food company Barry Callebaut with a 530-basis-point margin tailwind in 2027, while Nestlé faces a 50-basis-point drag. These estimates include assumptions about scale discounts but exclude transaction exchange rates, product pricing, cost savings and changes in product mix.