The Hershey Company announced a comprehensive increase in prices today “across the majority of its U.S., Puerto Rico and export portfolio” in response to a broad-based increase in the company’s input costs:
“A weighted average price increase of approximately 9.7 percent across the Company’s instant consumable, multi-pack, packaged candy and grocery lines is effective today. These changes will help offset part of the significant increases in Hershey’s input costs, including raw materials, packaging, fuel, utilities and transportation.”
HSY expects these price hikes to benefit the company’s financial results in its 2012 reporting year.
When the nation’s low-cost leader in retail warns about rising prices, people listen. Late last night, USA Today interviewed Wal-Mart (WMT) CEO Bill Simon in an article titled “Wal-Mart CEO Bill Simon expects inflation.” Nothing in the article comes as a surprise to those of us paying attention to inflation but having Simon issue this warning gives a lot more credence to the assessment that inflation, and inflation expectations, are slowly but surely coming unhinged.
The article includes a video in which Simon notes that inflation is “starting to creep into the business.” He started seeing inflation pressures late last year in items like dairy and is now seeing it in transportation-related goods like paper. (I assume he meant goods that carry heavy transportation costs). The article also features some cautionary commentary from a retail analyst.
Key quote from Simon in the article:
“…Inflation is ‘going to be serious…We’re seeing cost increases starting to come through at a pretty rapid rate.'”
NPR blog is hosting an informal poll on inflation expectations here: “Wal-Mart CEO Sees Inflation Ahead; Do You?”
In “Amber Waves to Ivory Bolls“, the NY Times describes the general rush of farmers to plant fields of cotton in the U.S., Brazil, and other countries to take advantage of the high prices of cotton despite the high prices of other food crops. This wave could place further upward pressure on the prices of food as clothing makers win the battle for acreage.
The NYT includes a particularly poignant quote from Webb Wallace, executive director of the Cotton and Grain Producers of the Lower Rio Grande Valley:
“It’s good for the farmer, but from a humanitarian perspective it’s kind of scary…Those people in poor countries that have a hard time affording food, they’re going to be even less able to afford it now.”
It could be another year of discontent for those people whose budgets are largely consumed by the costs of food.
Charles Evans, President of the Chicago Federal Reserve, recently spoke at The Darla Moore School of Business giving “A Perspective on the Current Economy.” The press summarized the lecture by indicating Evans remains a “dove” on inflation:
“The Fed is more sanguine about inflation than some because an outbreak of higher prices is missing a key ingredient – higher wages, Evans said…A weak labor market will continue to exert important downward influences on inflationary pressures, he said.” (from Marketwatch)
A cynical person could say that Evans does not fear inflation because QE2 has failed to provide the one single thing that Americans care most about in the economy right now: jobs. Instead, I will note that this commentary comes immediately on the heels of an op-ed piece from Laurence H. Meyer, a former governor of the Federal Reserve, who opined that inflation is not a problem…and even if it became one, the Fed would quickly get it back under control. Since the Federal Reserve cares more about inflation expectations than current levels of inflation, it makes a lot of sense that a good amount of energy is spent trying to convince people that no matter what the data say or the anecdotal evidence (or Inflation Watch postings for that matter!), the future is fine.
However, the Wall Street Journal noted that the commentary from Evans runs directly counter to the warnings of coming inflationary pressures from FOMC voting member Charles Plosser, president of the Philadelphia Federal Reserve Bank (see here). Apparently, the gameplan and script are not receiving the same reading on the team!
The NY Times printed a mostly anecdotal article about companies hiding price increases in smaller packages in “Food Inflation Kept Hidden in Smaller Bags” (reprinted by CNBC). The article chronicles one shopper’s slow awakening to the shrinking packages all around her as she tries to stretch the family budget to keep the same food on the table. Examples of shrinking products include a can of Chicken of the Sea albacore tuna, Doritos, Tostitos, Fritos, “fresh stack” packages of Nabisco Premium saltines and Honey Maid graham crackers, Procter & Gamble “Future Friendly” products, and the unwrapped Reese’s Minis.
We have printed similar stories of companies using shrunken packages as a method for passing on stealth price increases (see category “Disguised Inflation“):
- November 28, 2009: “Food packages are shrinking, but prices remain the same“
- January 25, 2010: “Stealth inflation“
- November 11, 2010: “Inflation hidden in higher unit costs“
In “Philips Warns On TV Business As Price Pressures Remain“, the Wall Street Journal reports that Philips (PHG) observed a 15% decline in television prices form the fourth quarter of last year to the first quarter of this year. PHG is under pressure to turn a profit in televisions as the company has lost money in this division for several years.
The troubles at PHG confirm the poor performance retailers like Best Buy (BBY) saw in televisions. From BBY’s last earnings report (March 24, 2011):
“The Domestic segment experienced a low double-digit decline in entertainment hardware and software, as well as TVs, as current consumer demand in new television technologies had not yet emerged as a significant revenue driver…”
Reuters reports that Proctor & Gamble Company (PG) and Unliever (UL) are hiking the price of soap and detergent in China by 15% (see here). This action has apparently attracted the attention of government authorities who have promised to “investigate.”