Unilever has increased prices for its products by 11 per cent and raised its full-year sales guidance, as it battles to pass on cost increases to consumers tempted by cheaper alternatives.

The consumer goods maker said it had yet to pass on the full impact of cost rises to shoppers in what chief financial officer Graeme Pitkethly called a “truly unprecedented cost landscape”.

He said Unilever was increasing advertising to keep households loyal to its brands despite the price rises, and expected profit margins to remain lower for the rest of the year, with cost inflation predicted to peak in the second half.

Alan Jope, chief executive, said the economic climate was a big test for Unilever’s brands, which include Dove soap, Hellmann’s mayonnaise and Cif cleaning products.

“We are entering into a period of slower economic growth. Whether it tips into full-blown recession remains to be seen . . . Our ability to navigate these conditions is almost entirely dependent on the strength of our brands,” Jope said.

Pitkethly noted that as prices rose, supermarket own-brand products were taking market share from Unilever in Europe and the US.

“We’ve stepped up the investment in our brands. We’re definitely advertising more: we stepped up brand marketing investment by €200mn in the first half,” he said.

Pressures on consumer focused companies from rapidly rising inflation are becoming increasingly clear. US retailer Walmart, for example, issued its second profit warning in 10 weeks on Monday, as higher costs weighed on its price-sensitive customers.

Unilever, one of the largest companies on the London market, has been affected by steep rises in the prices of commodities such as palm oil while already contending with lacklustre performance.

While prices for palm and crude oil have retreated recently, Pitkethly said costs for other commodities Unilever uses, such as natural gas and kerosene distillates, continued to increase.

Prices for Unilever merchandise rose 11.2 per cent in the three months to the end of June from a year earlier, but at the cost of a 2.1 per cent drop in sales volumes that affected all three of Unilever’s product divisions. That brought underlying sales growth to 8.8 per cent for the quarter.

Sales growth for the full year would be above a previously signalled range of 4.5 to 6.5 per cent, Unilever said. Turnover was up 8.1 per cent in the first half year on year to €29.6bn.

Shares in the group rose 2.07 per cent by mid-morning on Tuesday to £39.98.

Underlying operating margin was 17 per cent, down from 18.8 per cent a year earlier, and is expected to come in at 16 per cent for the full year, marking the impact of cost increases that will not be fully passed on to consumers.

Martin Deboo, analyst at Jefferies, said the numbers reflected “stronger than expected price realisation in a tough commodities environment”.

As with its rivals, Unilever faces pressure to raise staff salaries as the cost of living soars. But Jope said: “We are being frequently asked ‘will wages keep up with inflation?’ and the answer is no . . . Inflation is a scourge and impacts everyone’s standard of living.”

Unilever announced the appointment of activist investor Nelson Peltz to its board in May. The appointment raised hopes among other shareholders for a shake-up at the company, whose share price has been languishing since chief executive Alan Jope took over in 2019.

Investors had also reacted poorly to Jope’s move late last year to try to acquire GSK’s consumer health division, now spun off as Haleon, for £50bn.

Jope said on Tuesday that Peltz was making a “very constructive contribution” so far.