Morgan Stanley: Cost pressures diverge across European consumer staples; household and personal care prices expected to rise more than food in 2027

What are the latest changes in raw material prices?

As of September, Morgan Stanley’s consumer staples commodity cost index was up 6.8% year over year and down 0.1% month over month; it remained approximately 40%–45% above its pre-pandemic 1-year, 5-year and 10-year averages.
By sector, the household and personal care cost index rose 11.3% year over year, more than the 6% rise for beverages and 3.5% for food. Month over month, they rose 0.2%, fell 0.4% and fell 0.2%, respectively.
Commodity 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 aluminum fell 12%, 11% and 7%, respectively.

Assuming spot prices remain at their levels at the time of the report and accounting for procurement and hedging lags, the bank expects consumer staples input costs to rise approximately 1.1% in 2026, driven mainly by a 2.3% increase in household and personal care, with little impact from food and beverages.
Under the same assumption, industry costs will rise approximately 2% in 2027; household and personal care and beverages will rise 5.2% and 3.4%, respectively, while food will fall 2.6%. Sectors use different raw material mixes, so an overall price increase does not mean costs rise across every sector at the same time.
The model applies a two-quarter price transmission lag to household and personal care and a four-quarter lag to food and beverages, reflecting forward purchasing and hedging contracts; recent spot price changes therefore enter company costs at different times.

Morgan Stanley weights the theoretical impact of commodity prices on margins by each company’s estimated ratio of key raw materials to sales. Under the model incorporating lags, Henkel and Unilever face margin headwinds of approximately 260 and 230 basis points, respectively, in 2027.
Differences among food companies are also pronounced: the model shows Lindt and Barry Callebaut receiving theoretical margin tailwinds of approximately 160 and 530 basis points, respectively, in 2027, while Nestlé still faces a headwind of approximately 50 basis points.
These estimates include assumptions about volume discounts but exclude transaction exchange rates, company pricing, cost savings and changes in product mix; actual margins will also be affected by these factors.