U.S. companies face soaring bills for all kinds of materials that they need to do business—and surging demand is helping them pass on those higher costs to their customers.
In early-season earnings calls, executives from burrito chain Chipotle Mexican Grill Inc. to appliance giant Whirlpool Corp. and diaper maker Procter & Gamble Co. have outlined price hikes, largely in response to rising materials costs.
Their comments back up the data that show inflationary pressures building in the economy as the pandemic recovery gains speed. A sustained rise in prices is poised to test the Federal Reserve’s expectation that any post-Covid spike will be limited and temporary.
Across-the-Country Increases
Shortages, bottlenecks and a year-long bull market in commodities have been pushing inflation rates higher across much of the world. In the U.S., which pumped more pandemic stimulus into its economy than most countries and has managed a faster vaccine rollout, those supply issues may be amplified by a boom in demand.
Indexes of prices received by manufacturers from the New York, Kansas City and Dallas Fed districts all climbed to record highs in April. Business executives in the Dallas Fed survey said their selling prices, costs of inputs and even wages will all rise more than twice as fast as they did last year, at rates between 4.3% and 5.5%.
The list of commodities that are getting more expensive is lengthy—from plastics, steel and wood to adhesives and resins—and many are in short supply, according to the Institute for Supply Management. The latest ISM report showed the share of manufacturers saying their cost of inputs rose last month was close to a post-2008 high.
Corporate chiefs say they’re able to raise their own prices in response, without scaring off customers. A combination of pandemic stimulus and enforced savings under lockdown has left U.S. households flush with cash, at least in the aggregate.
‘Just So Solid’
Appliance maker Whirlpool is phasing in price increases of between 5% and 12%, which will almost all be in place by the end of the second quarter, according to Chief Financial Officer Jim Peters.
“Material costs are still increasing,” and will likely keep doing so until the third quarter, Peters said in an interview. The company has been able to pass on those costs, he said. “Right now, demand is just so solid in new home construction, in remodels, in replacements, all areas are really strong.”
Strained supply chains have been one major driver of rising input costs.
The six-day blockage of the Suez Canal by a stranded container ship in March was just a visible manifestation of the kind of bottlenecks that are emerging around the world, said Daniel Florness, chief executive of industrial supplier Fastenal Co.