Freight prices rising; Sen. Rockefeller says Congress must intervene

To the chagrin of West Virginia Sen. Jay Rockefeller, rising freight costs are a reality:

  • Nike Chief Executive Mark Parker said yesterday that  “rising freight, labor and oil costs are likely to add pressure to future results.”
  • Levi Strauss & Co. said earlier this week that it is raising prices on some products to cover rising costs “for raw materials such as cotton as well as for labour and freight.”
  • Across the pond, Associated British Foods said earlier this month that “high cotton prices and freight costs will put pressure on profit margins next year.”
  • Back in the U.S., ethanol producers are warning of higher shipping costs too: “Going forward, exports will be affected by an increase in shipping rates[.]  Container rates are expected to increase Oct. 1 by $300-400 per container. Rail rates will take an annual new crop increase, and physical rail cars themselves are tight and expensive.”

(Emphasis added.)

I’ll leave it to Inflation Watch readers to decide whether Congress should regulate railroad freight prices, as Sen. Rockefeller proposes.

What is going on with cotton prices?

Notwithstanding a pullback the past two days, cotton prices have been on a tear lately, recently surpassing $1 per pound for the first time since the 1990s. From various news reports, it appears that the surge is due to  recent floods in Pakistan coupled with unusually strong demand in China and elsewhere for cotton fiber and yarn. It will be interesting to see whether textile producers and clothing retailers can pass along higher prices to consumers.

Gold prices continue to rise

The price of gold, which has nearly doubled in the past two years, hit another all-time high yesterday.

Rally in lumber prices continues

In April of this year, lumber futures rocketed to a four-year high of $337. In less than three months, prices fell almost 50%. However, on Tuesday, unexpectedly high housing starts sent lumber futures soaring. Bloomberg reported:

“Lumber futures for November delivery rose the CME’s $10 daily limit, or 4.5 percent, to $232 per 1,000 board feet as of 9:12 a.m. in Chicago. That’s the highest price for a most-active contract since Sept. 14.”

The recent recovery in lumber prices keeps the uptrend from the early 2009 lows intact and suggests that the highs in April will give way sooner than later.

Lumber futures rally again

Lumber futures rally again

High Commodity Prices Force Starbucks to Increase Its Prices

Coffee drinkers at Starbucks will soon be waking up to more than just caffeine. Starbucks will now greet its customers with higher coffee prices to compensate for 13-year highs in the price of green arabica coffee and what the company calls “significant volatility” in the prices of milk, sugar and cocoa.

Starbucks announced its plans in a news release titled “Starbucks Responds to Surging Green Coffee Prices” (September 22, 2010):

“Company to Implement Targeted Price Adjustments; Will Hold the Price of Tall Brewed Coffee at $1.50 in Most U.S. Markets; Retail Packaged Coffee Price Increases Possible”

Starbucks blamed “speculators” for the high prices, and lamented that it is one of the last in the industry to pass on these soaring costs to customers.

The Seattle Times highlights other past price increases at Starbucks:

“Last year, Starbucks raised prices on some drinks, including Frappuccinos, when it also dropped prices on other beverages. In 2007, it raised prices across the board an average 9 cents because of high dairy prices. That followed a nickel increase a year earlier.”

AK Steel increases prices to offset rising material costs

Yesterday, AK Steel (AKS) warned investors that earnings would be lower than expected partly due to increasing material costs (mainly iron ore). Today, AK Steel told its customers that prices will increase as part of an effort to recoup some of those rising material costs. These price hikes are also enabled by strong demand for stainless steel products.

AKS will raise prices for specialty flat-rolled stainless steel products by about 5% to 10%. These products include “…tensilized, bright annealed and special finishes, along with special mechanical requirements.”

Full disclosure: author owns shares of AKS

Flat core CPI raises odds of more quantitative easing

The Bureau of Labor Statistics (BLS) reported the consumer price index (CPI) increased 0.3% from July to August on a seasonally adjusted basis (0.1% non-seasonal).

Most interesting was the core CPI, CPI less energy and food, remained flat. Most notable amongst the basket of items was apparel and shelter. These are the only two items that have declined in price over the past 12 months, and their monthly price changes for August were also amongst the lowest, -0.1% for apparel and flat for shelter.

The persistence of these low readings now has analysts speculating that the odds have increased that the Federal Reserve will announce next week a second official round of quantitative easing.