American Companies Hike Prices As Consumer Demand Soars

While businesses are already enjoying the benefits of lower taxes and regulatory relief from the Trump administration, they have yet another reason to celebrate, according to Bloomberg.

By pouring hundreds of billions of dollars of tax cuts and extra government spending into an already stretched economy, Trump is fostering an environment where firms such as conglomerate 3M Co. can raise prices because demand for their products is strong.

That’s a turn-around from the past decade, when executives often bemoaned their inability to lift prices because of their fear of sacrificing sales. The shift will help them pad profits that are already surging thanks to lower taxes. -Bloomberg

“The power is with the seller,” said IHS Markit chief business economist, Chris Williamson. 

“Non-manufacturing firms told the Philadelphia Fed this month that they expect to raise prices 3 percent in the coming year, up from a 2 percent increase they forecast in May,” reports Bloomberg. 

A separate survey of both manufacturing and non-manufacturing companies by IHS Markit found that their average selling prices rose at the fastest rate of the nine-year-old expansion in July before the pace eased a bit in August. -Bloomberg

St. Paul, Minnesota-based 3M for example hiked prices the most in over four years during the second quarter, and are “highly confident that our price increases will more than offset whatever we see for raw material headwinds for the year,” including tariffs, according to CFO Nicholas Gangestad.

Also noting the return of pricing power is the Fed, who mentioned it during their July 31 – August 1 meeting, according to the minutes. Fed Chairman Jerome Powell and colleagues can celebrate the fact that inflation “remained near 2 percent” in June – their desired rate.

Purchasing Power

And while businesses have enjoyed being able to ask more for goods and services, price inflation isn’t so welcome to consumers – whose wages have stagnated despite multi-decade low unemployment. Rising prices have already begun to erode already-strained consumer purchasing power – a point which some Democratic opponents of Trump have brought up ahead of midterm elections, reports Bloomberg.