Tobacco manufacturers take advantage of inflation to increase their margins

The new tobacco product tariffs, published in France on December 11, 2023, and applicable from January 1, 2024, show that tobacco manufacturers are taking advantage of the expected inflation increases to increase their margins on certain products. Philip Morris France, which charges 50 cents more for its cigarettes than its competitors, nevertheless frequently denounces tobacco tax increases.

The next increase in tobacco product prices in France is scheduled for January 1, 2024. This is not a new increase in tobacco-specific taxation, but simply an alignment with the level of inflation.[1]This inflation-alignment measure was enacted by the government at the end of 2022 in the Social Security Financing Act. It aims to ensure that the price of tobacco products does not become more affordable due to currency depreciation.

With product prices set by manufacturers, most tobacco companies have increased the price of a pack of cigarettes by 50 cents, a pack of heated tobacco sticks by one euro, and rolling tobacco by one euro to 1.20 euros. Philip Morris France (PMF) stands out from its competitors by increasing the price of its cigarettes by one euro per pack, bringing the price of a pack of Marlboros to 12.50 euros.

Increases vary depending on the tobacco product but exceed inflation

While they publicly oppose tobacco tax increases, arguing that they would generate contraband, tobacco manufacturers are in favor of limited price increases that bolster their margins. The inflation-related increase in the price of a pack is 4.5 %, or a pack of cigarettes costing 11.00 Euros, which increases to 11.50 Euros. With a 1 euro increase per pack, PMF therefore grants itself an additional margin.

On a 16 euro pack of rolling tobacco, the 4.5 % increase linked to inflation represents 70 cents. However, manufacturers are increasing their prices by 1 to 1.20 euros, or an additional 30 to 50 cents per pack. Heets (PMF) and Néo (British American Tobacco) heated tobacco sticks are increasing by one euro, which takes into account the increase in taxation on these products decided at the end of 2022.[2]This increase had not been passed on to the selling price by manufacturers until now, in order to keep these heated tobacco products at attractive prices.

These limited price increases thus benefit manufacturers as well as tobacconists, whose revenue from the sale of tobacco products corresponds to a percentage of the selling price called a royalty. The State also receives a portion of the increases through tax revenues. However, it has not been established that consumption declines with limited price increases and a context of inflationary catch-up.

Keywords: tobacco prices, inflation, excise duties, Philip Morris, Marlboro, taxes

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[1] Tobacco prices will increase in 2024, Service-Public.fr, published December 17, 2023, consulted December 18, 2023.

[2] Jacquot G, Social Security Budget: Senate Reestablishes Higher Tax on Heated Tobacco, Public Sénat, published December 8, 2022, consulted December 18, 2023.