U.S. Companies Start to Flex Pricing Power in First Test for Fed

U.S. consumer prices are headed higher -– at least according to the people who set them.

Corporate leaders are increasingly confident that they can charge more for their products without losing business. On recent earnings calls, plenty of executives said they boosted prices in response to the higher costs they’re having to pay. And many expect further increases, with economic growth speeding up and commodity prices showing no sign of coming off the boil.

“There is a cost headwind and we continue thus far to be able to experience pretty positive ability to price,” said Melinda Whittington, chief financial officer of La-Z-Boy Inc., on the company’s Feb. 17 earnings call. “There’s no doubt at some point that might that have some impact on end consumer demand. We certainly have not seen that thus far.”

The price hikes discussed on multiple earnings calls feed into the great debate about whether U.S. inflation is poised to take off once the pandemic ends.

They also add to upside risks for the Federal Reserve, which expects any post-pandemic jump in prices to be temporary and doesn’t plan to tighten monetary policy anytime soon. It could take three years before inflation rises to meet the 2% target over a sustained period, Fed Chair Jerome Powell told Congress yesterday.

‘Increases Are Coming’

In industries ranging from equipment manufacturing and construction to furniture-making, more corporate leaders are pointing to sharp rises in the cost of materials and transportation, after the pandemic upended supply chains.

The same forces are pushing small-business owners to raise prices too.

“All of our distributors have indicated that price increases are coming,” said Don Katzenberger, chief executive officer at S&K Roofing, Siding and Windows. He said the Eldersburg, Maryland company raised prices from 5% to 10% across the board in response, and still expects sales to continue growing in 2021.

Strong demand has already made it tough for firms to meet orders, after they drew down inventories early in the pandemic. And production in some industries has been held back by labor force disruptions.

The Fed’s view is that the long-term forces keeping inflation low for the past decade and more are still at work, while the economy still has a way to go before completing its pandemic recovery.

“It’s just going to be hard for businesses to believe that you’re going to have the market power to increase prices,” Richmond Fed President Thomas Barkin said on Monday.

Yet firms surveyed by the Philadelphia Fed this month said they expect a 3% increase in the price of their goods and services over the next four quarters, up from 2% in November.

The Dallas Fed’s latest manufacturing survey on Monday showed almost 80% of factory respondents said supply chain disruptions have led to higher input costs, while 47% said they’re raising selling prices as a result.

Owens Corning, which makes building materials, raised prices in January and has announced it will do so again in April.

The firm is “starting to see some inflationary headwinds” in the cost of transportation, materials and energy, Chief Executive Officer Brian Chambers said on a Feb. 17 earnings call. “We wanted to make sure we were staying in front of that.”

Even some service providers think they might have more pricing power later this year and into 2022. When asked about large-events planning during Hilton Worldwide Holdings’s Feb. 17 earnings call, Chief Financial Officer Kevin Jacobs said he’s told his team to “not give away space in 2022 too cheap.”

“I think there’s going to be gargantuan demand,” he said. “And, as a result, more pricing power than people think.”

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