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article imageTo protect profits, prices on consumer goods will rise this year

By Lynn Herrmann     Feb 16, 2011 in Business
New York - By the time autumn rolls around, most Americans will be paying more for commodity items and in some instances considerably more, as companies protect their profit margins by passing production costs on to consumers.
Many large companies are sending signals that retail prices of their products will rise this year as costs for raw materials needed for product manufacturing continue surging upward.
Wesley Card, chief executive of the Jones Group, a company that includes Nine West and Anne Klein, said: “There are cost pressures from virtually everywhere,” the New York Times reports. The company says brand prices will jump 15 to 20 percent by autumn.
Other big name companies such as Polo Ralph Lauren, Hanes and Kraft also state product prices must rise in order to protect profits. Commodity prices began rising last summer but company manufacturers and retailers absorbed those costs, fearful of a pushback by consumers struggling during tough economic times.
It remains to be seen how consumers will respond to the coming prices increases. “Consumers are not exactly in the frame of mind or economic circumstances to say ‘Oh, pay whatever they ask,’” said Joshua Shapiro, chief US economist at MFR, Inc, according to the Times. “There’s going to be pushback,” he added.
Rising fuel prices have led to increased utility bills for manufacturers and overseas labor has become more expensive. Copper recently reached its highest level in 40 years. The costs of leather and polyester is rising. Prices for corn, wheat, sugar, pork, beef and coffee are surging as well.
Last October, cotton reached its highest prices since it started being traded as a commodity, a period dating back 140 years. Cotton prices began rising last summer after the Pakistan flooding and heavy rains in parts of China seriously impacted their cotton harvests. According to Chicago Breaking News (CBB), the Chinese are spending heavily on cotton supplies and poor harvests suggest global inventory will remain tight, trigger fears by traders of a worldwide shortage.
“Inventories of yarn and fabric got low because of the recession, cotton inventories were low because production sank and all of the sudden demand comes back,” said Andy Ryan, an analyst at FCStone Fibers & Textiles, CBB reports. “It’s the perfect storm,” he added.
Clothing consumers will get hit hard in the coming months if those cotton prices remain high. Hanes Brands, already forced to raise its prices, would have to raise them again by summer’s end. The cumulative price increase could reach 30 percent. Brooks Brothers and Polo Ralph Lauren said they would raise their prices this year, the Times reports.
Beginning April 1, Whirlpool products will see a price increase of 8 to 10 percent. Starbucks announced last fall it would raise prices and many local coffeehouses have recently raised their prices.
Jack Russo, a consumer goods analyst with Edward Jones, said: “These companies are constantly walking a tightrope on how far do I go. Do I offset with price or other cost cuts, or do I just take it and have it eat into my profit margins?” according to the Times.
Other companies like Kimberly-Clark, manufacturer of Kleenex tissues and Huggies diapers, associated rising costs of raw materials as a factor in its earnings dip last quarter. Likewise, Proctor & Gamble - maker of Crest toothpaste, Tide and Cascade - said earnings in those divisions fell slightly.
The cost of feed for livestock continues to remain volatile as well, thanks to rising fuel prices along with disruptive and in some instances, catastrophic weather events. International demand for meat has also increased and as a result, meat prices are soaring.
Restaurants, many of which resisted raising their menu prices to keep customers, will have to make adjustments as the situation unfolds.
According to the Times, the Steiner Consulting Group works with restaurant companies on their ingredient purchasing and its owner, Len Steiner said that this year “you’re going to have to raise prices to stay in business.
The news comes as reports surfaced that China is hoarding 41 percent of the world’s supply of wheat, rice and corn. The news is of some concern because the country consumes 21 percent of global supply of those grains. Production of those grains in the last year has been impacted by floods, droughts and fires across the planet which has created an unstable grain market.
Freezing temperatures this winter in Florida and the Sinaloa region of Mexico have had a devastating impact on agricultural produce in those areas, and as a result, prices in grocery stores have been soaring, with more instability in the forecast.
More about consumer goods, commodity prices, Price increase, cotton prices, Consumers
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