Wednesday, July 02, 2008

Levees aren't the only thing about to burst...

Many companies have been reluctant to pass on recent input price increases. They may be running out of time and choices, but a surprising number feel they cannot.
A startling proportion of the executives aren’t sure what pricing policy their companies will follow, suggesting that energy costs and the ongoing credit crunch have made even short-term planning difficult. Fifteen percent of all respondents say that they don’t know if their companies will raise prices during the next six months. Among respondents at public companies and the largest companies,2 the uncertainty is even more acute: 22 and 21 percent, respectively, are not sure if they can raise prices in the near term. Nearly a quarter of those who expect inflation to rise by three percentage points or more aren’t sure if the prices their companies charge will keep pace. [More - with free subscription]
The lack of pricing power means companies erode their profits, something that could show up in the next round of earnings reports. Like it or not, those costs will have to be recovered eventually.

Which leads me to suspect we are witnessing a protracted delay in food price boosts as well. If current economic patterns are any indicator, we will resist price increases until costs simply force them, and then they will continue for much longer than we expect.

What this suggests to me is the food-fuel data will be greatly altered by this time next year.

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