Welcome To The Real World Of Higher Prices

Raw material prices are rising on just about everything. Fuel costs are up. Manufacturers say that they can't absorb the spiraling costs of commodities on their own any longer and that consumers will have to share the pain. The selling of the great price increase of 2011 has begun.

Everybody wonders how much consumers will take, of course, given our skittish relationship with an economy that we're told has recovered. As much as we want to believe it, we don't. Friends are still being laid off. Others have given up hope of ever finding jobs as cushy as the ones they used to have. The value of our homes seems mired at a level we're shocked they ever fell to. With all the talk of the need to cut "entitlements" like Social Security and Medicare, we wonder how we'll ever retire given the few grand left in our 401(k)s.

The New York Times says we can expect to see everything from coffee, meat and milk to Brooks Brothers suits and Nine West boots to go up somewhat substantially this year. Whirlpool CEO Jeff Fettig, according to Reuters, insists it is not "economically feasible" for the company "to remain indefinitely in the promotional mindset it adopted for the holiday season and last year in general."

advertisement

advertisement

When the washing machine dies, there's little choice but to replace it. But with Whirlpool and Electrolux saying that retail prices will be increasing across the board by 8 to 10%, you have to think that consumers are going to hold on until the very last sputter.

With a few glitches here and there, we have always been a land of "gimme more, more, more." We don't like to be told that we need to consume less or pay more. Period. We can visualize our abundance and it will bestow itself upon us, just like that.

And so, when the New York Times warns that "Companies Warn That Higher Prices Are Looming," we like to think it will be akin to what we're used to seeing at the gas pump, where prices seem to rise and fall with the prevailing wind.

Some economists worry that this may not be the right time for increases. "Consumers are not exactly in the frame of mind or economic circumstances to say 'Oh, pay whatever they ask,' " Joshua Shapiro, the chief United States economist at MFR Inc. tells the Times' Stephanie Clifford, Motoko Rich And William Neuman. "There's going to be pushback."

But there's another gnawing concern in the back of people's minds that may move front and center as world events unfold. Suppose these prices are going to stay at higher levels. As much as we want to believe that things will always get better, we also realize that some of what we've got has been artificially propped up.

"Cheap gas prices have also lulled Americans into a cycle of buying bigger cars and bigger houses further away from their work -- leaving them more exposed to rising prices, some experts say," CNNMoney's Steve Hargreaves wrote in May 2008, when the average U.S. price-per-gallon was on its way to $4.12 (it's currently at $3.11).

It doesn't take a Ph.D. in global economics to wonder if the turmoil in the Middle East, welcome as it may seem from a political point of view, will disrupt the flow of oil for some time to come. Lest you've forgotten, check out this chart to see just how jumpy gas prices can get.

Meanwhile, the administration's budget calls for large cuts in farm subsidy programs that help to keep domestic food prices low. There's a compelling argument that this is a long time in coming because these funds, which were originally intended to help family farms, are primarily boosting the coffers of large corporations (and actually resulting in retail prices that small farms can't compete with). The bottom line, however, is that consumers are likely to feel the impact.

Finally, it's getting harder to ignore the fact that we are in a global economy and that our living standards are way out of whack with those in much of the world. Consider Howard Schneider's lede on a story in the Washington Post today:

"Rising food prices pushed tens of millions of people into extreme poverty last year and are reaching 'dangerous levels' in some countries," World Bank President Robert Zoellick said Tuesday as he released new data showing that the cost of grain and other staples is near a historic high."

Such a reality puts the looming increase in the price of Velveeta into perspective.

Next story loading loading..