Shares in Procter & Gamble rose more than 4 per cent on Tuesday as it reported unexpectedly strong volume growth in its core US and European markets even after it pushed through further price increases. 

Investors and economists were watching the US consumer products company, the first of its peers to report earnings for the three months to December, for clues to whether inflation-wearied consumers may have reached the limits of what they will pay for household brands such as Tide and Pampers.

P&G said it had seen volume growth of 4 per cent in the US and 3 per cent in Europe for its fiscal second quarter. That sign of robust consumer demand, despite a 4 per cent increase in P&G’s pricing globally, also lifted shares in other consumer goods groups.

“That’s impressive because we’re at a point right now where the industry’s growth in the last two years has been driven entirely by price,” said Jason English, an analyst from Goldman Sachs.

“To continue that top-line growth, we have to have a successful handoff from price to volume, and what they showed in results today is [that] it’s happening,” he said. 

P&G’s comments on US demand underscored a message already emerging from recent economic data, such as last week’s stronger-than-expected December US retail sales report and news of a jump in consumer sentiment in January. 

While group sales of $21.4bn slightly undershot Wall Street’s consensus forecast, the strength of its margins in the quarter took analysts by surprise. The combination of price growth, productivity savings and more favourable commodity costs lifted P&G’s gross margin by 590 points before currency effects.

Andre Schulten, the group’s chief financial officer, pointed, however, to a likely slowdown in price increases, telling analysts on its earnings call that the next two quarters would “see less pricing benefit”.

Executives also flagged a more challenging picture in some international markets. P&G took a $1.3bn non-cash impairment charge against the value of its Gillette shaving brand, citing the weakening of several currencies against the US dollar, and reported a 15 per cent organic fall in its sales in China.

Consumer sentiment in China, P&G’s second-largest market, has not fully recovered, Schulten said. But its sales fall there in the quarter also reflected a 34 per cent drop in sales of SK-II, its high-end beauty brand, which chief executive Jon Moeller attributed to “anti-Japanese brand sentiment”.

SK-II was one of several Japanese beauty products to suffer consumer boycotts in China after the Japanese government released nuclear contaminated water to the Pacific Ocean last year. 

Despite these setbacks, P&G said it had seen volume growth in markets representing 75 per cent of its sales, which Moeller attributed to it investing in new, higher-value products rather than simply raising prices on existing items. 

“The last number of years, we’ve pushed innovation as a driver of value . . . The whole idea is to create business and not take business,” he said, pointing to new product launches such as Olay Super Serum, which have brought new consumers into their categories with targeted marketing.

P&G’s earnings reflected a “barbell” trend that has seen some consumers pay up for high-performing products while others trade down to cheaper private label goods, said English. “It’s the middle of the market that’s being hollowed out,” he said.