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Dow Chemical CEO Says US Underestimating Inflation

CNBC.com
Friday, 30 May 2008 | 8:14 AM ET

Dow Chemical Chief Executive Andrew Liveris said Friday the company seems to have hit a "raw nerve" with the price increase it announced earlier this week.

Chemical's Big Price Hike
Details on the 20% price increase, with Andrew Liveris, Dow Chemical & Co.

"I do think we've hit a raw nerve," Liveris said in an interview on CNBC's "Squawk Box." "I do think, out there in the world that we all are living in, I think the consumer is screaming, and I think it's the topic du jour, and every company is in a different part of the value chain."

On Wednesday, Dow made a high-profile announcement that it would increase its prices by as much as 20 percent on June 1. Dow, the top U.S. chemical company, said the plan was necessary to offset the impact of rising costs for energy and related raw materials. Over the past year, Dow has already increased its price by about 12 percent, but those price changes have been phased in gradually rather than implemented all at once.

In the interview, Liveris said he thinks the U.S. is underestimating the level of inflation in the economy and he expects the rise in energy costs is beginning to destroy demand.

"We're in a part of the economy that is very elastic," he said. "So unlike electricity, or unlike transportation, which up until now has been relatively inelastic, we're getting demand-destroyed."

Liveris expects the price increases his company made will eventually be passed on to the consumer.

Liveris estimates Dow uses about one percent of the U.S.'s electricity to make its products, which become components of other consumers goods, and the equivalent of about one million barrels of oil a day.

"We've done everything at Dow to be cost-efficient, energy-efficient," he continued. "We've diversified our mix. We've gone overseas for low-cost joint ventures. I think everyone has to bear some of this out-of-control energy policy."

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