Unilever upped its full-year growth forecast this week as double-digit price hikes continue to drive strong organic growth – but investors reacted cautiously amid warnings of further inflation.

The consumer giant’s underlying sales growth stepped up to 10.6% in the three months to the end of September, from 8.9% over the whole nine-month period so far in 2022. This growth was purely driven by price, which has increased in each of the past seven quarters and now stands 12.5% up year on year.

Inevitably the price hikes had a negative impact on volumes, which are down 1.6%, though underlying volume growth improved in a number of categories compared with the second quarter.

Home care was the group’s standout performer due to taking the highest pricing action. It saw value growth of 13.6%, fuelled by its exposure to rising input costs, despite a volume decline of 3.6%. Ice cream also grew sales by 13.2% with volumes also up 1%, while beauty & wellbeing grew 6.7% and personal care by 8.9%.

Regionally, developed markets increased by 7.1%, but that was against a 9.3% price hike and a 2% volume decline. Meanwhile, price increases of 14.9% in emerging markets saw the region up 13.3% with a 1.4% volume decline.

Due to strong pricing, the group now expects underlying sales growth for the full year 2022 to be above 8%, despite more negative underlying volume growth than in the first nine months.

It guided to net inflation in 2022 of around €4.5bn, with €2.5bn in the second half. The business warned inflation would persist for the foreseeable, despite a number of commodities softening from their peak, with €2bn of inflation expected in the first half of next year driven by currency devaluation, higher raw material costs and energy and labour inflation..

Unilever shares dipped 0.9% to 3,832.5p on the update, despite the surging sales and upgraded expectations.

Barclays noted the pricing “continues to surprise to the upside”. The broker said Unilever had been expected to benefit from the rolling over of inflation, but that €2bn on inflation in the first half of 2023 is only “a modest sequential reduction, but warned “the focus is likely to move back to inflation. Although Unilever is maintaining its margin guidance and will increase reinvestment, we think this could take some of the gloss from a resilient trading performance.”

Hargreaves Lansdown concluded: “As we’ve been seeing with other names in the wider industry, raising prices and keeping volumes ticking higher is beginning to become a mammoth challenge, especially at the scale Unilever’s pushing through the price tags, so the drop in volumes isn’t all that bad. However, cost pressures [are] starting to have a bigger effect on consumer spending habits as pent up demand and savings start to fade away.”

Unilever shares remain 4.1% down so far in 2022, but are more than 15% up since March lows.

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