From candy to cashmere, prices rising
A worker arranges spools of thread at a textile factory in Karachi, Pakistan. Cotton prices have doubled in the past year.
February 15th, 2011
11:42 AM ET

From candy to cashmere, prices rising

Manufacturers of everything from cereal to refrigerators say they have absorbed price increases as long as possible and will now start passing along those costs to consumers.

Who's to blame? It depends. A cold snap in Mexico means potential shortages and higher prices for cucumbers and tomatoes. The Chinese economy is growing strongly, and it is gobbling up everything from oil to grains to metals.

Bad weather for cotton growing in Pakistan, China and Australia is fueling a historic rally in cotton. Cotton prices have doubled over the past year and will certainly translate into higher prices for T-shirts and underwear.

Hanes, Nike, and Polo Ralph Lauren are just some of the brands whose prices will rise, because of price increases for cotton, wool and cashmere.

A Brooks Brothers wrinkle-free shirt once cost $79.50. Today it costs $88.

Starbucks and McDonald's also have told investors on their earnings calls they will be raising prices this year. McDonald's said it will raise prices on coffee and food items "where it makes sense."

Spiking sugar prices and political unrest in cocoa exporter Ivory Coast have candy makers cautiously watching developments heading into the important Easter candy and chocolate season.

A one-month export ban on cocoa from Ivory Coast last month did not affect Valentine's Day, but candy maker Mars on its website says, "We continue to have concerns regarding the political situation that exists within Cote d'Ivoire."

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Big-ticket purchases are affected, too. Appliance makers LG and Whirlpool have said they are charging more because of higher metals prices.

Soaring grain prices mean meat and dairy costs are rising.  Some blame so-called "hot" money in commodities, fueled by the Federal Reserve's epic effort to pump money into the system to help the U.S. economy.

"All commodities to varying degrees are stores of value and in general are priced in U.S. dollars," says economist John Ryding of RDQ Economics. "When the Fed keeps interest rates at effectively zero and prints $600 billion through QE2 (a second round of quantitative easing), investors, traders and speculators are likely to purchase other stores of value, and this is the essential process behind the general rise in commodity prices."

Hot commodities are only part of the story.

Labor costs are rising in some emerging markets where American companies built factories, shipping costs are up as oil prices rise, packaging costs are rising, and a generally improving economy means businesses are more comfortable raising prices.

Still, it's a delicate task to raise prices when consumers are still so price-sensitive. Some of these price increases will be overt - more for T-shirts, underwear and shoes. Others will be less glaring - you may see prices for processed food stay the same, but there may be fewer manufacturer coupons.

Economist Ryding says there is no doubt that these prices will translate into higher consumer inflation.

But official forecasts for inflation are still pretty tame. The U.S. Department of Agriculture officially forecasts that food prices in the U.S. will rise 2% to 3% this year.

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Filed under: Agriculture • Business • Economy • Food • World
soundoff (19 Responses)
  1. ChocolateCentral

    It is hard to imagine food prices going any higher! Healthy food, primarily organic and unprocessed, is a priority in our household, but I can't imagine spending even more than we do. I think it is time to begin our own vegetable garden here at home or a community garden. We already have a small fruit orchard, but we can't live on fruit alone. As far as high prices for premium chocolate, I'll continue to pay for it, as chocolate is such a pleasureable treat. The ban on cacao from the Ivory Coast has helped shine a light on the dark side of the cacao industry. Let's continue to support fair-trade chocolate manufacturers.

    February 16, 2011 at 11:31 am | Report abuse |
  2. Paul BARNARD

    I think this article is very true an straight forward, I do believe prices are gonna rise no matter what an depending on what it is consumers will continue to keep buying the product, or they will just stop.

    March 15, 2011 at 2:02 pm | Report abuse |
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