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Beyond gasoline: Prices surge for oil-based goods
Some consumer-products companies are starting to pass on higher energy costs to consumers.
By Ron Scherer | Staff writer of The Christian Science Monitorfrom the June 5, 2008 edition
Page 1 of 2
New York - Besides gasoline, the Department of Energy calculates, there are 57 major uses of petroleum – everything from cosmetics to ballpoint pens, nylons, and even the waxes in chewing gum.
That is why the effect of high oil prices is now spreading well beyond the pump, where gasoline hit another record price of $3.98 a gallon on Wednesday. Now, consumers will have to brace themselves for other higher costs, since businesses such as Kimberly-Clark, Procter & Gamble, and Colgate-Palmolive are raising prices on their products to recoup energy costs.
In brief, this means less money in consumers' pockets in the months ahead. But it also goes beyond consumers. For example, the price of asphalt is up 65 percent so far this year – and municipalities' and states' road departments are cutting back. This may mean bumpier roads ahead.
"Not quite half of what we consume is energy, food, and other commodities that are significantly affected by the rising cost of petroleum," says Mark Zandi, chief economist at Moody's Economy.com.
On a year-over-year basis, energy prices are up 15.5 percent. Much of the most recent surge in oil prices has yet to be factored into consumer prices. But anecdotal signs are emerging that companies can no longer absorb the higher energy costs.
Last week, for example, Dow Chemical announced a 20 percent across-the-board price increase on its products, which range from antifreeze to cleaning fluids to pharmaceuticals.
Similar moves are expected. "It's just the tip of the iceberg," says Ann Paulins, director of the School of Human and Consumer Sciences at Ohio University in Athens. "The retailers can't absorb it all."
Groceries
That sentiment is echoed by Wegmans, a grocery chain based in Rochester, N.Y., that normally tries to keep price increases to a minimum. Now, however, prices are rising on nearly every shelf.
"We're talking increased raw materials, packaging, transportation, the whole ball of wax," says Jo Natale, a spokeswoman. "We have tried to absorb as many increases as possible to remain competitive, but we have reached the point where retail prices have to go up."
Late this spring, the CEOs of some major consumer-products companies also said they had to start to recoup higher energy costs.
"Through the retailer, they have to pass on to consumers their higher costs," says Ali Dibadj, a securities analyst at Sanford C. Bernstein and Co. in New York. "The price increases are ranging from 4 to 6 to 10 percent."
On April 30, Clayton Daley, chief financial officer of Procter & Gamble, told securities analysts that the company expects to incur about $1.4 billion in higher energy costs this year.
Between May and August, he said, the company would raise prices 4.5 percent on Always and Tampax products, 7 percent on Crest Pro-Health Rinse, 6 percent on Dawn, 8 percent on Swiffer refills, and 11 percent on Oral-B power brushes and refills.
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