More and more U.S. factories are getting some pricing power back.
Robust orders for business equipment, steady consumer spending and improving economies around the world have stoked demand for raw materials. An acceleration in prices of just about everything from chemicals and fuel to lumber and metals has been in train for months. More recently, some producers have shown a greater ability to pass those costs onto their customers, based on the latest data from regional Federal Reserve banks.
Having more success in passing along higher input costs may be good news for Americans’ paychecks. as it gives companies the wherewithal to boost pay while ensuring profit margins don’t erode. At the same time, inflation also eats into consumers’ purchasing power, and concerns about faster price gains fueled big drops in stocks and Treasuries earlier this month.
An unidentified respondent in the most recent survey of manufacturers in the Kansas City Fed District, released on Feb. 22, said materials prices seem to be on the cusp of increasing significantly. And with qualified workers harder to find, inflation is on the way, according to the comment.
The largest recent increases in input costs are petroleum based, with diesel prices having surged more than 43 percent in the past 12 months. But the jump isn’t confined to energy. Lumber, chemicals, plastics, paints and scrap metal are among the biggest year-over-year price gainers, according to the Bureau of Labor Statistics.
A firming up of the world economy is also helping to propel materials prices higher. A recent JPMorgan Chase & Co. survey of leaders of mid-size U.S. companies showed 69 percent were upbeat about global prospects this year, more than double the 30 percent who said so in 2017. Such optimism helps explain a surge in metals futures over the past year.
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