AK Steel (AKS) is increasing prices yet again. Effective today and starting with new orders, AKS announced: “…it will increase current spot market base prices for all carbon flat-rolled steel products…Base prices for carbon flat-rolled products will increase by $40 per ton.” AKS explained the reason for this price hike as a “…response to increased demand for carbon steel products, as well as the need to recover higher costs for steelmaking inputs.”
Since July, 2010, AKS has increased prices at least 10 times: four increases for carbon steel products and six increases in surcharges for electrical and stainless steel.
Full disclosure: author owns shares in AKS
Netflix (NFLX) is increasing the price it charges for its 1-DVD and 2-DVDs out at a time plans by $1. Its 3 DVDs-plan will increase by $3 to $19.99.
We have chronicled on these pages China’s struggles with inflation. It appears the pressures are only getting worse. Bloomberg reports “China Inflation May Be Too Hot for Controls Amid Cash Glut“:
“Standing near his 12-table noodle shop on Beijing’s Yonghegong Avenue, owner Liu Heliang says meat and vegetable prices have climbed 10 percent in a year and staff wages are up 40 percent.”
“Premier Wen Jiabao’s cabinet last week announced it will sell grain, cooking-oil and sugar reserves, ordered an end to tolls on trucks carrying produce and threatened price controls to rein in a 10 percent inflation rate for food. Because the measures would do nothing to counter the 54 percent surge in money supply over the past two years, the risk is they will prove insufficient to cope with the challenge.”
It seems consumption is declining in the wake of this inflation, but not fast enough to cool prices down. The Chinese government is worrying even more about what will happen to the many millions of poor people who may no longer be able to afford the little food that they currently consume.
Patrick McKeever of MKM Partners says prices at Wal-Mart have edged higher in recent months:
In a note last week, retail analyst Patrick McKeever of MKM Partners, identified what he calls a “small, but meaningful increase” in the price of 86 Wal-Mart items he tracks on a regulator basis. The average price is up 0.6 percent in the last two months. On an annual rate, that’s about a four percent inflation rate.
Photographic evidence here.
In this short post, Fortune provides a detailed diagram showing how companies have held product prices steady but have shrunk toilet paper rolls to cover the higher costs of pulp and shipping. In other words, the per unit cost (square inch of toilet paper) has increased, but this increase is not reflected in the final price, but in the lower amount of product provided at that price. This is a common tactic to disguise the inflated price of a good to maintain the appearance of price competitiveness. Just one more way in which an apparently benign pricing environment is actually sitting on top of roiling pricing pressures.
- Tired of defections to Facebook and elsewhere, Google is offering all of its employees a 10 percent salary increase.
- Twenty-five employees fired by Digg were immediately approached by other companies, including Twitter and Groupon.
- Talented college grads with no work experience are reportedly getting job offers paying $120,000 or (much) more.
- I.T. job postings are booming.
- Start-ups are being acquired just for their employees. Derek Andersen: “[L]ook at the number of companies getting acquired for talent by Google, Facebook, and now LinkedIn. Seems like someone is getting bought for talent every other week. It hasn’t been that way for a couple of years. A top tier developer friend recently told me that he’s been encouraged by many to start a company and sell to Google/Yahoo in 6-months for a big check just to acquire the team. I believe it’s 100% realistic.”
Something is happening here, and it sure ain’t deflation.
Prices of long-dated treasuries continue to fall, meaning yields are rising. Below is the chart for the iShares Barclays 20-year Treasury Bond Fund (ticker: TLT).
The interest rate on the 30-year treasury bond is now 4.25 percent, up from 3.52 percent on August 31, 2010. (Disclosure: the author is currently long TLT.)
Bloomberg reports that Norman Chan, the head of Hong Kong’s central bank, is preparing to take additional tightening steps to prevent additional Federal Reserve monetary easing from adding to Hong Kong’s inflationary pressures:
“The U.S. Federal Reserve’s expansion of stimulus will add to the risk of a housing bubble in Hong Kong and may force extra measures to cool prices…”
“The Hong Kong Monetary Authority will take measures that are specific to the housing market if necessary…The risk of an asset bubble in Hong Kong’s property market is rising.”
It must seem odd to monetary authorities on this side of the Pacific that a central bank is trying to get ahead of a property bubble and not just plan for clean-up duty after it bursts. Since August, Hong Kong’s authorities have “…raised down-payment ratios, stopped offering residency to foreigners who buy property in the city, and increased land auctions to boost supply.” Despite these measures, sales of news homes still doubled in October.
In “Business Earnings Climb Despite Rising Costs“, the WSJ reports that companies reporting third quarter results are starting to sing a common refrain: material costs are rising fast and threaten to pressure profits. Soon, these pressures could translate into inflation at the consumer level…just as the Federal Reserve is rolling out a second phase of quantitative easing to fight the exact opposite force of deflation.
The article cites inflationary (or stagflationary) examples from paper and packaging makers, apparel manufacturers, tire companies, and office supply distributors.
Avery Dennison Corporation is experiencing particularly acute problems with higher material costs:
“Label maker Avery Dennison Corp. is battling higher raw material costs with price hikes, but is still losing ground. CFO Mitchell Butier said while the company keeps adding more price increases to fight rising raw materials, it continues ‘to be behind that curve.’ The company announced a ‘mid to high single-digit’ price increase in North America, Chief Executive Dean Scarborough said. ‘Pretty substantial…but we need it. Our margins are really taking a hit,’ he added.”
In “Unable to Stretch Further, Apparel Makers Raise Prices“, the WSJ notes that surging prices for cotton will force apparel companies to hike clothes prices next year even if consumer demand remains sluggish:
“Hanesbrands Inc, Jones Group Inc. and VF Corp. said they will raise prices for clothing set to hit stores early next year by as much as 10%. When cotton prices began their climb a year ago, retailers and manufacturers were unclear how much—if any—of the cost would be passed along to consumers. But with benchmark cotton now up about 80% since the beginning of the year, apparel companies say they no longer have a choice.”
…and polyester will not provide any pricing relief:
“Companies can’t blend their way out of the problem. Polyester prices are also rising, climbing between 20% and 25% this year driven by oil prices and higher demand from manufacturers switching away from cotton.”
The economy in Australia continues to perform extremely well…so well, that the Reserve Bank of Australia (RBA) now feels compelled to take proactive steps to ward off higher than desired inflation risks:
“…the moderation in inflation that has been under way for the past two years is probably now close to ending…the economy is now subject to a large expansionary shock from the high terms of trade and has relatively modest amounts of spare capacity. Looking ahead, notwithstanding recent good results on inflation, the risk of inflation rising again over the medium term remains. At today’s meeting, the Board concluded that the balance of risks had shifted to the point where an early, modest tightening of monetary policy was prudent.”
Australia’s terms of trade are now around 60 year highs. The RBA also felt free to act given its assessment that “…concerns about the possibility of a larger than expected slowing in Chinese growth have lessened recently…The turmoil in financial markets earlier in the year has abated, though sentiment remains fragile.”
After holding interest rates steady for many months, it seems the RBA is getting ready for a series of fresh tightenings to maintain a lid on inflation pressures.
(Note: author owns FXA, the Rydex CurrencyShares Australian Dollar Trust ETF)
In “Food Inflation Rising as Cooking Oil Poised to Catch Grain Gains“, Bloomberg describes a world where “agflation”, my term for soaring prices in agriculture, is set to continue soaring into 2011. The extensive article focuses on the factors supporting higher prices for cooking oil, but it also presents a perfect storm for ever higher prices across the agricultural complex:
- Increasing wealth and soaring consumption in Brazil, China, and India
- Water scarcity
- Drier weather
- Increasing production of biofuels
- Investor demand in the face of low interest rates in developed economies like the U.S.
The “good news” is that agricultural prices have not quite reached the highs in 2008 that sparked riots in several countries:
“While the UN’s Food Price Index rose 23 percent in the 12 months ending in September, it’s still about 12 percent below the 2008 peak. Food security is of less concern now than in the last several years because grains stocks are bigger and a weakened global economy will stunt demand, Abdolreza Abbassian, a senior economist at the UN FAO, said last month.”