Inflation Is Here—So Who Has Pricing Power?

Inflation is here; who has pricing power is the question. In the past day, more than a half-dozen companies have commented on higher input costs in their industries. Margins are under pressure: this was particularly evident in the case of Whirlpool which missed expectations on higher steel, paint, and plastic costs. All are cutting costs, and all are seeking to raise prices, with varying degrees of success.

Consider:

1) Airline AMR announced price increases of $2-$5 one way. Doesn't sound like much, but this is at least the fourth time airlines have raised rates since December; oil is up about $13 since then.

2) Engine additive maker Lubrizol cited higher costs (oil) as an issue, but they have successfully passed on price increases, so their margins have not deteriorated.

3) Shoe maker Wolverine World Wide (think Hush Puppies, Merrell boots) noted margins were under pressure due to higher product costs; they are raising prices.

4) Avery Dennison makes adhesive labels, saw a decrease in margins due to higher inflation, but they are having difficulty raising prices due to competition.

5) Darden Restaurants (Olive Garden, Red Lobster) at an investor conference Monday, forecast beef costs would be up 9 percent and seafood costs up 11 percent in 2011; they are taking steps to reduce costs, but they still expect menu price increases of 2 to 3 percent.

6) Higher steel, copper, aluminum and plastic costs are impacting large capital goods companies. Recently Illinois Tool Works and Paccar missed expectations, in part due to higher than expected raw material costs.

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