Electrolux expects inflationary pressure to be shortlived

Inflationary pressures should subside later this year as the easing of the Covid-19 pandemic brings about a normalisation of extraordinary demand for consumer goods, according to the head of the world’s second-largest home appliances manufacturer.

Jonas Samuelson, chief executive of Electrolux, told the Financial Times the Swedish group had seen the “cost and inflationary pressure on everything accelerating” but had managed to pass on the price increases to consumers.

“A lot of money has shifted from services to goods during the pandemic. That puts pressure on the production of those goods. But there is no inflationary pressure in services. When the normalisation happens there is a good case that inflation will normalise. We will have less ability to pass on cost increases quickly, but inflationary pressures should diminish too.”

Electrolux is second only to Whirlpool in the manufacturing of washing machines, dishwashers, vacuum cleaners and kitchen equipment, and has had to deal with surging costs in everything from steel to ocean freight in the past year.

Consumer appliance makers’ business has boomed as more people have worked at home during the pandemic but investors and most companies are expecting a slowdown this year if the pandemic eases as vaccinations rise in Europe and North America.

Asked precisely when that might happen, Samuelson said: “That’s the big question. It’s still relatively hard to give a precise outlook. We’re frankly still more in the pandemic framework than many of us expected six months ago. I still think generally it will happen, but that normalisation will be at a higher level than before.”

Electrolux, which said in April it expected the normalisation to come in the second half of 2021, will continue to try to pass on all price increases in raw material and other costs to customers. “We’ve gained a lot of acceptance and predictability in that. There just isn’t enough flex or margin in our business to be able to absorb them,” Samuelson added.

The debate about whether or not inflation is transitory as economies recover from the pandemic is one of the biggest facing central banks and investors globally. Samuelson cautioned that he was unsure how much of what Electrolux experienced fed into global inflation.

Electrolux and other appliance manufacturers have struggled to meet demand in the past year because of shortages of semiconductors, problems with ocean freight and the availability of steel and plastic.

“As initial lockdowns were lifted, people were rushing to buy appliances. Since then, we have been fighting to keep up. It’s not that we’re struggling to keep our factories going, it’s more struggling to keep overtime going. It’s a nice problem to have, but it doesn’t feel a nice problem to have when you can’t meet customer needs,” Samuelson said.

He added that the two biggest problems were with semiconductors and ocean freight, which had become “super expensive”.

Electrolux, which reports second-quarter results on July 20, experienced sales growth of 23 per cent in the first three months of this year. Its operating profit margin in each of its past three quarters are the highest at the Swedish group in more than a decade.

Samuelson said the notion of a just-in-time supply chain was taking a hit because of the pandemic and that Electrolux, which already has separate production flows for most appliances in Europe, North America and Asia, was working on increasing its common components and modularisation of products to reduce complexity.

The Swedish group has been experimenting with new business models such as renting or subscribing to appliances. But Samuelson said he saw the greatest opportunity in increasing the “repairability” of its appliances, particularly in trying to help customers work out whether it was worth repairing or replacing a device.