Inflation is running at a level not consistently seen in four years.

Price Increases by Companies Start to Stick

By EDUARDO PORTER

Published: March 24, 2005

n recent years, most companies were forced to absorb the higher costs of basic expenses like employee health care, raw materials and energy, focusing instead on squeezing more efficiencies from their workers and machines.

But now, from airlines to manufacturers of advanced plastics, many businesses are overcoming their fears of losing customers and are starting to pass on/传递 cost increases.

After two months of virtually no inflation, the Labor Department reported yesterday that the Consumer Price Index jumped 0.4 percent in February, the fastest pace since October.

Surging oil prices contributed substantially /充分的to the increase last month. But other prices also rose broadly, pushing the core Consumer Price Index - a less volatile/不稳定的 measure that excludes food and energy - up by 0.3 percent, the sharpest increase since September.

The report came a day after the Federal Reserve/美国联邦储备系统, in raising interest rates for the seventh time in less than a year, expressed greater concern about the risk of higher inflation, citing evidence that some businesses are gaining increased "pricing power" in the marketplace.

Including energy and food costs, average prices are now 3 percent above their level a year earlier. Some consumer prices have risen even faster.

Medical costs are 4.3 percent higher than a year ago; hotel rates have gained 7.3 percent; prices of dairy products/乳制品 are up 5.6 percent.

Excluding food and energy, consumer prices rose by 2.4 percent in the 12 months to February - the fastest pace since the summer of 2002.

"There seems to be a great deal of cost pressure," said Richard J. DeKaser, chief economist of the National City Corporation, a banking company in Cleveland. "Producer prices are rising faster and import prices are rising faster. These inflationary pressures are working their way through."

But worries about inflation among investors were tempered /缓和的yesterday by a sharp slide in oil prices that took them below $54 a barrel, as the Energy Department reported that weekly crude inventories in the United States rose to their highest level since the summer of 2002.

Indeed, the value of the dollar against the euro and the yen rose in currency markets yesterday, with investors betting that the Fed's tougher language suggests it might be more aggressive about fighting inflation with higher interest rates.

In the bond market, the benchmark 10-year Treasury bond/国债, after initially falling in value, ended trading in New York up slightly; the yield, which moves in the opposite direction from the price, slipped to 4.59 percent, from 4.64 percent Tuesday. On Wall Street, stocks were mixed, with the Standard & Poor's 500-stock index and Nasdaq composite index both up, while the Dow Jones industrial average fell slightly.

Inflation has been slowly building for many months. Import prices have risen over the last two years, as the dollar has declined, relieving some pressure on domestic manufacturers to keep prices down.

Moreover, from the prices of raw materials, which have risen 11 percent over the last 12 months, to the price of finished products at the factory gate, up 5 percent, producer prices have been rising considerably faster than the Consumer Price Index. Now, with a strengthening economy both domestically and abroad lifting /上升demand, companies are finding it easier to raise prices again.

"It's the revenge of the business cycle," said Richard B. Hoey, chief economist of the Dreyfus Corporation, a mutual fund company. "With the fed funds rate at a multi-decade low - after a massive fiscal stimulus and after driving down the dollar for the past three years - how shocked can you be that there is an upward shift in inflation?"

Most American businesses had for some time been unable to pass on cost increases to consumers because there still was plenty of spare capacity/多余的生产量 and they were facing relentless /无情的competition from factories in cheap-labor countries like China and India.

As robust demand growth has pushed the unemployment rate down and capacity use up, businesses have recovered some of their ability to price products.

"With fewer spare workers and less spare capacity, the trade-off /交换，协议between making more stuff and raising prices starts to change," said Andrew Tilton, an economist at Goldman, Sachs.

Indeed, a nationwide survey of small and midsize businesses in February by the PNC Financial Services Group found that half planned to pass on cost increases to their customers, double the proportion that did two years ago.

"Everybody in the lighting industry is passing on cost increases," said Emma Price, owner of Edison Price Lighting in Long Island City, Queens. "We have no choice. Our costs are rising extremely rapidly."

And price increases are sticking. "These forces are operating on so many competitors," said Stuart Hoffman, PNC Financial's chief economist. "When one raises prices, others follow."

Take Pacific Plastics and Engineering, a maker of high-technology plastic parts for medical devices and other precision equipment in Soquel, Calif. Despite double-digit increases in the cost of plastic resins/树脂 over the last 18 months, the company kept prices flat, said Stephanie Harkness, the company's chief executive.

"You bite the bullet to ensure customers are not going to walk," she said.

To protect its margins/利润, the company squeezed efficiency, making the most out of its enterprise planning software. It required employees to shoulder a greater share of health insurance premiums.

But eventually, Ms. Harkness said, "you reach a point where you're as lean/倾斜 and mean as you can be." By mid-April, Pacific Plastics will have completed a broad evaluation of its pricing, and plans to pass on cost increases selectively to some customers.

Until energy price increases moderate and raw material costs soften, consumer prices are likely to move up. The increase in the Producer Price Index "suggests there is more pressure in the pipeline/管道，传送途径," said Mr. Tilton, the Goldman economist. Still, despite the renewed inflationary concerns, few expect businesses' efforts to pass on higher costs will produce a spiraling /螺旋round of price increases.

For one thing, the force of global competition remains in place. And excluding health insurance, labor costs have not risen much. The average weekly earnings of the typical worker fell by 0.4 percent in February, after accounting for inflation/按币值调整的会计核算.

Jared Bernstein of the Economic Policy Institute noted that the wages of average workers had fallen for 10 consecutive /连续的months in real terms - the worst performance in a decade.

The upward movement of prices, Mr. Hoey said, "is only a drift, not an explosion."