Tuesday, October 26, 2010

Beige Book, Part IV: Prices

From the Beige Book:

Input costs, most notably for agricultural commodities and industrial metals, rose further. Shipping rates increased, and retailers in some Districts noted rising wholesale prices. However, prices of final goods and services were mostly stable as higher input costs were not passed on to consumers. Wage pressures were minimal.

Let's take a look at the data:

Producers prices have been very weak over the last few months (A). They had seen much higher levels over the previous 5 years.

CPI has been very weak on a month to month basis over the last year or so (A and B). Notice how weak prices have been in relation to previous months.

Let's look at the anecdotal information from the districts:

Boston: A few firms are facing pricing pressures from rising input costs. In particular, the cost of steel and copper continue to rise as does the cost of wheat, which is used by a food products manufacturer. One responding firm increased prices modestly earlier in the year and anticipates having to raise prices another 1 percent to 3 percent between now and the first quarter of next year to cover rising steel costs. Other companies facing price pressures have strategically increased prices for some of their products and have met little resistance.

Philly: Reports on input costs and output prices indicate little change since the last Beige Book. Most of the manufacturing firms polled in September reported no change from August in the costs of the commodities they use or the products they make. However, some producers of primary metals raised prices. Construction firms gave mixed reports on prices, with some noting steady materials costs and some indicating increases for steel, lumber, and rubber products. Retailers generally noted that most wholesale costs and retail prices have been steady, although some contacts noted recent increased costs for some commodities and higher costs for international shipping. One large retailer said foreign suppliers have indicated that they plan to raise wholesale prices next year.

Cleveland: Other than volatility in steel and commodity prices, the cost of raw materials has been relatively stable. Several manufacturers announced product cost adjustments to reflect changes in steel, copper, and agricultural prices.

Richmond: Finally, our survey contacts reported that raw materials and finished goods prices, as well as wages, increased at a slower pace than in our last report.

Atlanta: District contacts reported that firms were resisting passing higher input costs through to consumers given the ongoing softness in sales. As a result, margins remained very thin. A number of manufacturers indicated that rising costs of materials and employee benefits were likely to be passed on to customers over the next 12 months.

Chicago: Price and wage pressures were moderate in September. Retailers reported wholesale price increases were becoming more widespread. Prices also moved higher for industrial metals like copper, aluminum, zinc, and gold. Shortages of silicone and copper contributed to the increase in industrial metal prices. The depreciation of the dollar was cited as one of the primary drivers of higher demand for gold. Energy costs, in contrast, were steady with natural gas prices at historically low levels. Limited pricing power continued to constrain pass-through of cost pressures to downstream prices. Wage pressures again increased only modestly on balance, although some contacts highlighted large expected increases in the cost of healthcare for employees.

Minneapolis: Overall prices remained level. Minnesota gasoline prices were relatively stable since the last report. Residential natural gas prices were only about 5 percent higher than a year ago. However, scrap metal and plastic resin prices increased since the last report.

KC: Raw materials prices increased, although selling prices and wages remained flat. District manufacturers reported that raw materials prices remained above year-ago levels and expected the upward trend to extend into the next six months. Selling prices in most sectors remained flat since the last reporting period but were generally below a year ago. Menu prices at restaurants increased modestly from month- and year-ago levels, and respondents expected prices to continue to increase, pressured by rising food costs. Firms continued to report little evidence of wage pressures across District labor markets and did not expect pressure in the near future.

Dallas: Selling prices held steady at most responding firms, but there were some reports of increases. Small parcel shipping prices rose slightly while large parcel shipping prices increased sharply, according to contacts. Prices for some petrochemicals rose during the reporting period, and agricultural respondents said commodity prices increased across the board. Food producers were considering price increases because of rising costs for dairy and sugar, and retailers noted higher costs for cotton, corn, wheat, milk and cheese.

SF: Upward price pressures were very limited on net during the reporting period. Commodity prices changed little in general, with the exceptions of continued increases in grain prices and rising prices for metals, particularly copper. Contacts pointed to very limited pricing power for most retail items and service categories, as final prices continued to be held down by weak demand and extensive competition.

Some observations in no order of importance:

  • Several districts reported concerns from rising commodities
  • However, there is little ability to pass on cost increases
  • There is little to no wage pressure.