10-31-18 5:44 AM EDT | Email Article
By Austen Hufford and Annie Gasparro 

U.S. companies are raising prices on everything from plane tickets to paint, passing on higher costs for fuel, metal and food to their customers after years of low inflation.

Coca-Cola Co. and Arconic Inc. on Tuesday said they raised prices in the third quarter. Top airlines, manufacturers and food makers have also announced price hikes over the past week. The higher prices have effectively ended a long period of low inflation that led the Federal Reserve to keep short-term interest rates near zero for years.

It's a tricky moment for the U.S. economy. Unemployment is at the lowest point in decades, and economic growth is strong. Now inflation is near the Fed's 2% target. Prices could climb higher if pressure from labor shortages and tariffs intensify. Or other factors could offset these pressures, including the stronger U.S. dollar, which makes imports cheaper.

Oreo cookie and Ritz cracker maker Mondelez International Inc. plans to raise prices in North America next year. Chief Executive Dirk Van de Put said in an interview on Monday that consumers and retailers in the region have become more amenable to paying more.

"The consumer environment is strong," Mr. Van de Put said.

The rising costs companies face are disparate. Mondelez said price hikes on some of its cookies and crackers will help cover rising ingredient and transportation costs. Airlines are paying about 40% more for fuel than a year ago. Trucking costs are up 7% annually in September.

And U.S. manufacturers are paying roughly 8% more for aluminum and 38% more for steel than a year ago as the industry has adjusted to tariffs the Trump administration levied on imports of those metals. A 10% tariff the administration imposed in September on $200 billion worth of goods from China is also weighing on businesses that buy those imports.

"These are all things that point to prices going up," said Diane Swonk, chief economist at Grant Thornton. "We might see a pop of inflation in the first quarter."

Shoe maker Steven Madden Ltd. on Tuesday said that it was raising prices on handbags and other products it imports from China and that it would shift production to other countries to avoid the tariff. The company said prices on goods made in China could rise up to 10% at company-owned stores.

Sensing that consumers are getting used to higher prices, some companies are also charging more to improve profits. Arconic on Tuesday said it had widened operating margins on its rolled-aluminum products by charging more as the tariff has pushed up prices overall.

At some point, higher prices could dampen the economy's recent strength. Investors are concerned that higher inflation could prompt the Fed to raise interest rates more quickly to prevent the economy from overheating.

Rebekah Tull, an interior designer for Whiski Kitchen in Royal Oak, Mich., said she is paying 15% more for Chinese-made quartz countertops and 10% more for imported cabinets because of tariffs. Higher supply costs added $500 to one client's $25,000 renovation recently.

"It's going to be more of a challenge to get the looks they see on Pinterest for their budgets," she said.

Businesses including Coke and big U.S. airlines have said their higher prices aren't denting demand.

"The economy is healthy," Delta Air Lines Inc. Chief Executive Ed Bastian said in September. "To the extent oil prices were to continue to rise, we expect to be able to pass along the cost of that."

Delta, JetBlue Airways Corp. and American Airlines Group Inc. have all raised fares or fees to cover higher fuel costs.

Some smaller airlines say they can't risk alienating customers with higher fares. Budget carrier Allegiant Travel Co. said its passengers were more sensitive to price hikes than those of big carriers. Allegiant is cutting some off-peak flying to trim costs.

Paint makers Sherwin-Williams Co. and PPG Industries Inc. in recent weeks said they would keep raising prices next year to cover the steeper climb in costs for ingredients such as titanium dioxide, a pigment used to make paint white. Sherwin-Williams raised prices in its own stores up to 6% in October.

"Raw material inflation has been unrelenting and accelerating," Sherwin-Williams Chief Executive John Morikis said on Oct. 25.

Some restaurant companies are raising prices even as they try to attract customers with deals. McDonald's Corp.'s 2.4% same-store sales growth in the U.S. in the third quarter was fueled by higher-priced burgers. Brinker International Inc. on Tuesday said it had raised the price of the two-entrees-and-an-appetizer deal at its Chili's Grill & Bar chain from $22 to $25.

Food makers had struggled earlier this year to raise prices because supermarket chains and online grocery services insisted on holding down prices as they fought for market share.

Kellogg Co. and Hershey Co. are using other tactics to make more from their products.

Kellogg released a chocolate variety of its Thick & Fluffy Eggo waffles and priced it 12% higher than similar products.

Hershey Co. on Thursday said it will sell candy in new packaging next year at higher prices per ounce.

Chief Executive Michele Buck said in an interview that retailers are more willing to raise prices now because consumer spending and economic growth have risen.

"Retailers understand that when costs go up, something has to give," she said.

Cheryl King, a 50-year-old personal shopper in Chicago, said she has noticed slightly higher prices on some groceries, especially the gluten-free and organic foods she buys for her two kids. But she said she and her husband, a surgeon, haven't changed their shopping list.

"I try to look for sales or coupons, but we're doing OK. We're not pinching pennies," she said.

Julie Jargon contributed to this article.

Write to Austen Hufford at austen.hufford@wsj.com and Annie Gasparro at annie.gasparro@wsj.com


(END) Dow Jones Newswires

October 31, 2018 05:44 ET (09:44 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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