By Uday Sampath Kumar

(Reuters) – U.S. consumer goods firms, including P&G and Coca-Cola (NYSE:), are preparing for an impending slowdown in demand as runaway inflation fuels a surge in prices of everything from toothpaste to sodas and hammers the spending power of Americans.

Companies, including Gillette-maker P&G, PepsiCo (NASDAQ:) and Hershey Co (NYSE:) saw record sales during the pandemic, even though they had to raise prices in order to offset rising labor costs.

Companies’ top executives have been warning that they may be hurt if they fail to pay the cost to customers over the last week. This could slow down revenue growth.

Michele Buck, Hershey’s CEO, stated that pricing power will remain high, while demand elasticities will return to historic levels.

Buck pointed out that the reasons behind the demand reset were a decrease in government benefits and a reduction in consumer savings, both due to the inflation rate exceeding wage growth.

U.S. consumer confidence fell in April, as Americans became less optimistic about the economy. Analysts warn that this may continue to decline.

CPG companies have managed to maintain their prices, at least in the past year. There has not been any noticeable drop in demand. Arun Sundaram, CFRA Research analyst, said that although it was an unusual operating environment, this is unlikely to continue.

“At one point, we’ll witness a meaningful shift of consumer behavior.”

Businesses are taking various measures to deal with expected decreases in consumer spending.

Earlier this week, P&G said it was moving out of discretionary categories and focusing more on recession-resistant daily use cleaning and hygiene products, while Coca-Cola’s CEO James Quincey said the company was expanding the use of cost-effective glass bottles.

Some companies see the future.

PepsiCo stated that demand was slowing in certain emerging markets due to rising prices, and McDonald’s (NYSE 🙂 claimed that inflation has caused lower-income customers in certain areas to buy fewer or cheaper menu items.

“The consumer with a lower income is likely to feel greater pressure than those who are more wealthy or average. Chris Kempczinski CEO at McDonald’s stated that it was important to maintain value as part of the company’s proposition.