Inflation settling in with improving economy in US

HARRISBURG, Pennsylvania (AP) - After a decade of relatively tame prices, American consumers are starting to feel the "ouch'' of inflation as the cost of everything from coffee, candy and home appliances is marching higher. 

It's not a sharp pain yet, and some call it hardly noticeable.  

But with companies such as Procter & Gamble Co., Hershey Foods Corp. and Whirlpool Corp. passing along the higher prices they pay for raw materials to their customers, it's beginning to get attention from people who shop in grocery, appliance and department stores. 

It's also getting noticed by officials of the Federal Reserve, and that could mean higher costs for everything from car loans to home mortgages. 

Minutes of the Fed's Dec. 14 meeting released last week suggest that central bankers' worries about rising prices could prompt them to continue bumping up short-term interest rates - which they raised five times in 2004 - to keep inflation in check. 

For the most part, inflation as measured by the Labor Department's Consumer Price Index has lagged behind the rising cost of wholesale products like fuel, steel and plastics over the past year.  

In the 12 months ending in November, the CPI rose 3.5 percent while the change in the price of finished goods at the wholesale level increased 5 percent. 

But the supply chain, which seems to have absorbed most of the higher costs, may be reaching its tipping point. 

Analysts say a slowly improving economy is giving producers more confidence to pass on higher prices, especially as excess inventories dwindle and commodities, from green coffee to oil, stay at elevated prices. 

"I think the faster rate of inflation is here to stay,'' said Nigel Gault, managing director of the U.S. economic service of Global Insight in Lexington, Massachusetts. 

"The important thing is whether it is stabilized at the rate it is at, or whether it will accelerate even faster. That is the question.'' 

Procter & Gamble linked its December announcement of a 14 percent increase in prices for Folgers roast and ground coffee to sustained increases in the cost of green coffee. 

It was the largest price increase for Folgers products in a decade, and one that analysts say could be permanent as manufacturers opt for higher quality and more expensive coffee beans in more varieties. 

Also last month, Hershey, the largest U.S. candymaker, cited rising costs for raw materials, packaging, fuel, utilities, transportation and employee benefits as reasons why it planned to raise prices on about half of its domestic candy line by approximately 3 percent early this year. 

With the arrival of the new year, appliance manufacturer Whirlpool bumped its prices up by 5 percent to 10 percent to pay for the rising cost of steel, transportation and plastics and resins. 

It's the largest price increase in at least 10 years for the maker of refrigerators, washers, dryers and microwave ovens, many of whose products are sold under the Kenmore brand at Sears, Roebuck and Co. 

Spokesman Tom Kline said Whirlpool believes customers will be willing to pay the higher prices. "We believe in the power of our brands,'' Kline said. 

How consumers react to such price increases could play a role in whether more companies follow suit. 

Shoppers in Harrisburg, Pennsylvania, said they noticed the price of fuel, health insurance and tomatoes going up, but if prices are rising more broadly than that, it's not yet a major concern. 

"That's the tricky thing,'' said Jay LaRue, who was drinking a Starbucks coffee and browsing chocolates at a mall. "They do it so gradually you don't notice.'' 

Comments like that are no doubt good news for Starbucks Corp., which raised its prices an average 11-cents-per cup in October. 

If inflation begins to squeeze his budget, retired accountant Willie Gaston said perhaps he'd get a part-time job and buy government "I-bonds'' - bonds whose interest rate is tied to the consumer price index - to protect his investments. 

Other shoppers said they would do things like buy cheaper groceries and coffee, replace clothing or household items less frequently, and cut back on vacations, cable television and dining out. 

"Wear it as far as you can, and pray that at Christmas time, everybody buys you clothing,'' Shaffer said. 

For now, Sears, the biggest U.S. seller of home appliances, said it would pass along price increases to its customers, but would also watch closely for dropping commodity prices. 

"I think we're treating it more as a passing situation,'' Sears spokesman Ted McDougal said. 

Dow Chemical Co. this year began charging 19 percent more for its plastics, specialty chemicals and agriculture products, saying it was paying more for raw materials and energy. 

It added it was convinced that improving demand and volume had given the chemical industry more pricing power. 

Other manufacturers may also decide there's room to raise prices, especially after Commerce Department figures recently released showed that orders to factories in the United States rose a stronger-than-expected 1.2 percent in November. - AP 

Latest business news from AP-Wire


Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 1
Cxense type: free
User access status: 3

Did you find this article insightful?


Next In Business News

SOP for capital market participants during MCO
Serba Dinamik clinches RM548m contracts
Milux proposes three-for-one bonus issue
SKP Resources: 3% of sales revenue impacted in FY March 31
Kelington’s orderbook hits RM490m with new RM118m contracts
Sufian Abdullah is new CEO of UEM Sunrise
Tough decision ahead for Bank Negara on OPR
KLCI remains in the red as banking heavyweights drag
PM: Impact of current MCO to be manageable
Facial recognition tech to be rolled out at KLIA

Stories You'll Enjoy