You know what’s annoying for any business?
Seeing the price of your raw materials rise due to economic strength in other markets, rather than your own.
Developing nations, particularly India and China, are growing far faster than the U.S., and they’ve become the largest driver for commodities demand growth.
Thus commodity prices rebounded hard since early on in the current global recovery, but their strength is out of synch with the magnitude of recovery in developed nations such as the U.S., which were slower to rebound.
Data on producer prices released by the Bureau of labour Statistics on Thursday shows how rapidly the pressure on corporate America is mounting. The producer-price index showed that crude goods such as iron ore, construction sand and pulp shot up 44.5% year-over-year, the fastest rate since 1974. Including energy and food costs, crude goods prices rose 33.4%.
“I make tires for people, so I charge them more money,” said Morry Taylor, chief executive of Titan International Inc., which supplies agricultural equipment. “You pass it through.”
Yet charging consumers more is a risky strategy with unemployment hovering near 10% in the U.S.
“What could be a worse market for doing that than the one we currently have?” said Sean McAlinden, chief economist at the centre for Automotive Research in Ann Arbor, Mich.
It’s tight spot, but given the U.S. recovery now starting to catch up, hopefully this is only a temporary squeeze and companies under pressure from rising commodities prices will soon be able to pass-on their higher input costs.
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