2008 to 2009: The Major Inflation Years (DOW, DD, HUN, EK, POT)

This week set one specific outcome in motion: price hikes equals inflation.  We saw several major producers announce price hikes, and that is on the heels of other price hikes elsewhere that have been announced since the first of the year.  Last weekend we noted how rates were pricing in a 100 basis point rise by the end of next summer.  We also noted how CPI actually looked ok earlier in May, so long as you don’t count food and groceries and other staples.

This week it was none other than Dow Chemical Co. (NYSE: DOW) that kicked things off with their "up to 20%" price hikes across the board.  After that, Huntsman Corp. (NYSE: HUN) came out and said that they would hike many prices by up to 25% and instill energy surcharges.  The DuPont (NYSE: DD) came out and said they were about service and communicating with customers, but then said the equivalent of "of course we’re going to raise some prices." Yesterday at the end of the day, Eastman Kodak (NYSE: EK) came out and said they’d hike prices up to 20%.

Earlier than this, Potash Corp. of Sasketchewan (NYSE: POT) has been raising fertilizer/potash prices steadily and it seems they may get one more kiss at the pig to hike prices again based upon the actions of major companies this week.  Every other ag-based company will pass one more round of price hikes too.

Here is what we have to get used to: those chemical price hikes are going to stick and they are going to influence prices in everything you have to buy like tooth paste, paper, cleaning supplies, hygiene supplies, and just about everything else.  Unfortunately that also means packaging for food, processing food, and even more hikes in clothing, batteries, fluids, equipment and so on.  Just get used to price hikes being announced in the coming weeks to months.  That IS coming, and companies now have a free pass to pass on price hikes to you and me.

While this is definitely going to creep into the retail level by July or August, the good news is that the readings may actually be one-time for the next 12 month.  If prices in materials stabilize, that could set up and end of the inflation readings on a year over year basis toward the end of 2009.  The bad news is that your name would have to be Pangloss to think that is good news.

Jon C. Ogg
May 31, 2008