Unilever’s first quarter growth came in above market expectations due to an 8%-plus hike in prices, but the consumer giant warned more price rises were on the way – causing some concern in the City.

In its first three months of 2022, Unilever posted strong underlying sales growth of 7.3%, but this was entirely driven by price rises of 8.3% as volumes fell back 1%.

Unilever said pricing stepped up further from the levels seen in the fourth quarter with a negative impact on volume. Homecare took the strongest pricing action, up 12.5% annually. Meanwhile, foods & refreshment grew 6.5% on price hikes of 7.1%, while beauty & personal care grew 7.1%, driven by price rises of 7.4%.

In total, Unilever expects input cost inflation of around €2.1bn in the first half, while the outbreak of war in Ukraine and related increase in raw material inflation have raised its cost forecast for the second half. It now expects to face an additional €2.7bn of cost headwinds.

It said “this period of unprecedented inflation requires us to take further pricing action” and warned of impacts on volumes as a result.

Therefore, while it expects underlying sales growth in 2022 to be at the top end of its previous range of 4.5% to 6.5%, full-year operating margin will be at the bottom end of guidance as increased costs hit its second-half performance.

Unilever shares opened up 1.5% but were soon in the red on concern over margin guidance.

Hargreaves Lansdown said Unilever faced a tricky balance between “covering rising input costs and keeping customers from abandoning branded products altogether”. “For now it seems the trade-off between volume and price is working, but that won’t last forever,” it commented. “Plus, this opens the door for private labels and own brands to pinch long-term consumers. If they’re happy with their swap, they may never return even if they can afford to.”

However, Jefferies suggested the higher-than-expected revenues should soften negative sentiment around the margin downgrade, given the higher revenue outlook. “Q1 is well ahead, negative elasticities reassuringly low… We read this as a positive update given extreme bearish sentiment and low relative valuation.”

Unilever shares were back up 1% by early afternoon to 3,612.5p on Thursday, but remain down almost 10% so far in 2022 and 12% year on year.