Higher prices everywhere

Published 4:30 pm Monday, July 28, 2008

NEW YORK — Coming to a store near you: Even higher prices.

Most inflation this year has come from food and fuel, as retailers resisted passing along to strapped shoppers the higher prices manufacturers charged them, but coming increases from companies such as Johnson &Johnson and Hasbro Inc. may leave them with no choice.

“While these increases have not for the most part been passed on at the retail level, it is inevitable that they will be at some point,” said Dean Baker, co-director of the Center for Economic and Policy Research. “Car dealers and other retailers cannot continue to absorb rising costs at the wholesale level and not pass some of these increases on to consumers.”

The increases leave retailers in a bind: They can keep prices steady and cut profit margins or raise prices and risk losing sales.

Wal-Mart Stores Inc. has been in the lead of aggressively keeping prices down, pressuring its competitors to do the same.

Costco Wholesale Corp. said its fourth-quarter earnings would be “well below” Wall Street estimates of $1 a share as it delays price increases.

Some economists say that once Americans spend their $106.7 billion in tax rebate checks, consumer spending may shrivel, sparking a round of price cuts to entice shoppers. Others think price increases may be postponed, but they’re on their way.

Much of this depends on how much money consumers have after buying gas and groceries — and what kind of mood they’re in once they’ve filled their tanks.

Even Costco said it won’t swallow price increases from suppliers on key items, but would postpone passing them along to consumers, if only for a few weeks, because it wants to be the last retailer to raise prices.

“I think the consumer is just starting to see, not only with us, rising commodity costs and rising general merchandise costs in a much bigger way then they’ve seen other than with gasoline itself,” Richard Galanti, Costco’s chief financial officer, said last week.

Inflation hit 5 percent for the year in June, the highest it’s been since 1991, but the price increases hitting manufacturers have been far worse.

Prices manufacturers paid for crude materials rose 70 percent for the three months ended in June, but companies weren’t able to pass all those increases along. Prices for the intermediate goods made from those materials rose much less, about 27 percent. The prices for finished products made from those goods rose 14 percent, according to the Bureau of Labor Statistics Producer Price Index.

But the increases keep coming.

Dow Chemical Co., the world’s second largest chemical company, is raising some prices by as much as 25 percent this month, following June price increases that were as high as 20 percent on all products. The increase is sure to put more pressure on manufacturers, since Dow’s chemicals are used in everything from packing peanuts to frozen-food trays to diapers.