Breakingviews: P&G cleans up by getting its hands dirty

Procter & Gamble keeps scrubbing up. The $366 billion consumer goods company generated another profit in its second fiscal quarter. Stubborn inflation is easing, which helped the company lower its own costs, but it didn’t afford the buyers of its goods the same luxury. Consumers keep losing at P&G’s expense.

The company run by Jon Moeller raised prices in each of its five divisions during the quarter, including a 7% increase in the grooming group, and 4% on average across the board. That caused volumes to fall overall, but barely, and as a result the company’s organic sales rose 4% during the quarter to boost the top line to $21.4 billion. It suggests that P&G knows how to raise prices just enough to bring the buyers of its Pampers diapers and Pantene shampoo to their pain point.

But it was also able to take advantage of falling prices overall. Gross margins improved five percentage points to almost 53%, reflecting a 7% drop in the costs of its own goods. P&G is taking those savings to reinvest in new products. For example, Moeller’s company refashioned packaging for its Ariel fabric softener to be more sustainable. That may be one way he can continue to raise prices in the coming quarters.

Procter & Gamble provides a lens into the relationship between the U.S. consumer and the companies that sell to them. And, in some ways, the earnings reflect how inflation is now flowing through to Americans. Sure, people’s moods have brightened. In January, U.S. consumer sentiment hit its highest level in over two years as sticker shock for items like food and gas abated. And retail sales inched up in December. But global unrest and sudden swings in the job market threaten to dampen people’s spirits.

Companies like P&G have been able to pass costs along to consumers for several quarters. The dynamic between rising prices and falling sales suggests they’ve found the peak pressure point. But now they’ll be able to benefit from the opposite dynamic –their own expenses falling – without pushing those savings along.