Price Hikes Likely To Be More Common
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

Three days ago, Kimberly-Clark announced a 6% price increase on consumer tissue products, effective early next year. It is the first widespread increase since March 2004, and reflects the considerably higher costs of pulp materials, energy, and distribution.
Kimberly is not alone. Procter + Gamble recently raised family-care products about 6%, which followed hikes in other lines such as Cascade (8%) and Metamucil (5%) earlier this year. According to a Kimberly spokesman, Dave Dixon, Georgia-Pacific (which will not comment on pricing) has also recently raised prices. He notes that pulp costs have climbed by about 10% since Kimberly’s last price hike, while natural gas prices have doubled and oil is ahead 60%.
At a recent investor conference in New York, anecdotal evidence of a widening trend of price hikes made the rounds, raising investment issues not much discussed in recent years.
Without a doubt, any sharp increase in inflation would come as a shock to investors, even though the chart of year-over-year CPI gains since 1998 looks like a stock you’d like to own. Though the stock market has been hit occasionally in the past few months by hurricane-related hikes in energy costs, few analysts project any real inflation threat in the months ahead. Are investors too complacent?
One money manager who tends to be ahead of the curve (and not quoted) thinks rising inflation is a real concern, but only over the next six months. She likens the situation to a “pig in a python.” That is, there will be a bulge in the inflation numbers over the next several months as higher energy and storm-related costs pass through the system. Longer term, globalization will continue to keep a lid on prices.
Most economists would agree. Don Staszheim, the former chief economist at Merrill Lynch and more recently head of the eponymous advisory firm, is in the mainstream of those who think there is “no chance” of high inflation rates anytime soon.
On the other hand, the chief economist for the Association of General Contractors of America, Ken Simonson, is seeing sharply higher prices on a number of building materials, many of which had already risen markedly in the past two years. “The most dramatic recent rise has been in the price of PVC pipe, where prices are up sharply.” PVC is used in water and waste systems, and is a product for which natural gas is the feedstock. Rebuilding in the Gulf Coast region has exacerbated already tight supplies of such goods.
Mr. Simonson worries that the market is viewing prices that prevailed the day before Katrina struck as the new benchmark. He feels that the fact that oil and natural gas prices have receded from the storm-induced spikes of early October should not be all that comforting.
He points out that gasoline prices, though down from their recent highs, are still 37 cents higher than a year earlier, and diesel fuel is up 53 cents. “It is clear that we have not returned to the status quo,” Mr. Simonson says. He thinks we will see continued price hikes on numerous products as the effects of higher energy costs and hurricane-created shortages roll through the system.
Jim Glassman follows consumer trends for JP Morgan Chase. He notes that inflation in his sector will be led by home heating costs, which in itself will slow consumer spending. Overall, energy accounts for 7% of consumer spending.
However, he points out that in some sectors, such as telecommunications and electronics, prices are still falling. Also, the costs of apparel and home furnishings, which account for 16% of overall consumer outlays, have been kept in check by low-priced imports. He points out that low wage growth has kept the consumer resistant to price hikes. “The average guy doesn’t care what the rationale is for raising prices,” Mr. Glassman says.
The dividends from global competition impress Vince Farrell of Scotsman Capital Management, who gives low odds to inflation reaching “alarming levels.” However, because companies will see margins under pressure, those who can will try to raise prices.
The bottom line? Investors who want a backstop against a nasty inflation surprise should be looking for companies with clout.
Normally, those companies are leaders in their fields and have enough power in the marketplace to push through increases. Also, they may be companies that are continually adding value to their product lines.
So where to look for winners? Generally, strong brands are essential. Companies like Kraft, Hershey’s, Heinz, Pfizer, and Anheuser-Busch would likely be the kinds of names investors will seek in the consumer sector. Specialty retailers, like Walgreen and Coach, also typically have above average pricing flexibility.
Certain industrial companies also have above-average pricing power. General Electric and DuPont are among those that have commanding market shares in a number of lines and should be able to pass through higher costs.
Companies unable to raise prices, other than the obvious (airlines, autos), typically include commodities suppliers and those with weak market positions. Financial services companies can play with pricing by adding new services. Insurance companies will be raising rates and may attract buyers for that reason alone.
Overall, few market analysts are willing to predict any sizable and sustainable jump in inflation. But a surprising number think price increases will become more commonplace, and that investors may be wise to focus on those that participate. For those who miss this turn, more bad news: Pepto-Bismol prices went up 5% in April.