10 years after the recession, Americans wake up to rising prices

November 11, 2018 | By | Reply More

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For now, businesses believe Americans are comfortable paying a little more. (AFP pic)

NEW YORK: After years of low, low prices, fed by near-zero interest rates in a convalescing economy, Americans are waking up to costlier consumer living.

Everyday household staples like diapers, toothpaste, shampoo and dishwashing liquid — not to mention soft drinks, cookies, chocolate, cat litter and autos — have all started getting more expensive, a trend expected to continue early next year.

Announced by companies during the most recent earnings season, these price hikes have typically ranged from 2% to 10%. They also stand in stark contrast to the usually unending sales and promotions from major retailers like Walmart and Amazon.

The higher prices aim to pad revenues for companies like Apple, which has just raised sticker prices for its new MacBook Air laptops and iPads by 20% and 25%.

But for a growing number of businesses, they also represent a response to mounting transportation costs. A stronger US dollar is similarly cutting into foreign earnings — while a tight labour slabour is at last pushing up wages.

US auto giant General Motors upped the average price of its SUVs, crossovers and pickups by US$800, something the company ties to rising costs for steel and aluminium — commodities on which President Donald Trump slapped steep new import duties this year.

American manufacturers are now paying eight percent more for aluminum than they did a year ago and 38% more for steel as local producers increase their prices.

Greater demand than ever
The 10 percent duties Trump imposed in September on US$200 billion in Chinese goods are also a drag for importers.

Like GM, most businesses have tried to pass these costs on to consumers. Benno Dorer, chief executive at Clorox, told investors recently that “doing nothing at this point is not an option.”

Half of the company’s products will cost more next year.

For the moment, Americans are willing to pay more, with consumer confidence near record highs, businesses believe.

GDP is indeed expanding above trend and wages climbed nicely in October.

“You can only price where you have demand for your product and we have greater demand than ever,” Delta Air Lines CEO Ed Bastian told investors on an earnings call.

Faced with a $2 billion jump in fuel prices over a year, the airline raised ticket prices and expects further increases for most flights.

Retailers and restaurants are also changing low-price policies to protect their margins because of rising trucking and labour costs. Goods transportation costs jumped 7% in September, mainly due to a lack of truck drivers.

Fast food restaurant chain Chipotle Mexican Grill will charge 4% more for its burritos to help absorb a 27.2% jump in labour costs, according to Chief Financial Officer John Hartung.

Fearing a consumer backlash, some businesses are considering alternatives, like rerouting their supply chains to circumvent tariffs.

Shoe brand Steven Madden wants to shift up to half of its production toward other countries like Cambodia and is renegotiating other contracts.

“We are working with our suppliers in China to provide us with better pricing,” chief executive Edward Rosenfeld told investors.

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