Wholesale prices rise nearly 1 percent in January

A shopper pays cash for sales merchandise December 26, 2000 at the Lakeline Mall in Austin, Texas. Stores were hoping that after Christmas shopping could salvage what seems to be a disappointing holiday season.

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STEVE CHIOTAKIS: Wholesale prices rose by nearly a percent in January. Higher fuel and food costs are to blame. But even if you take those things out, which is the so-called "core" rate, prices grew at their fastest rate in more than two years.

Peter Cohan has his own consulting firm, and he's with us from suburban Boston to help us sift through these government numbers. Good morning Peter.

PETER COHAN: Good morning Steve?

CHIOTAKIS: What is this data telling us, is inflation starting to rear its head?

COHAN: It really is. And the interesting thing is that it's different for companies as opposed to individuals. What's happening is that companies that are encountering higher prices are passing them onto other companies. But any company that deals directly with consumers is more reluctant to raise their prices.

CHIOTAKIS: They're reluctant because they want the consumers to keep coming in right?

COHAN: You got it. Consumers are still you know, suffering -- it's 9 percent unemployment rate, there's something like 30 million people in the country who are either unemployed or impartially, incompletely employed. And they're not really that eager to pay higher prices. The problem is they have to pay higher prices at the pump, but for consumer products like Pepsi, they are eating those cost increases and not passing on the prices to consumers because they don't want to lose their market share.

CHIOTAKIS: All right, so then they question is when will those prices, you know those higher costs, get passed along?

COHAN: Well they'll probably get passed along when the unemployment rate drops to about 4 or 5 percent and consumers start to enjoy increases in pay. You know, right now if you look at the last 10 years, the median income in the United States have dropped 8.5 percent. So consumers have been taking it on the chin for the last decade and so the punchline here is that these retail companies and consumer product companies are going to have to be eating a lot of their cost increases and they could really suffer in terms of profitability until the American consumer goes back to work and starts to enjoy an increase in income.

CHIOTAKIS: Punchline, no joke though. Really Peter, I mean let's break it down a bit very quickly in about 20 seconds or so. What areas should we be more concerned about as far as rising prices?

COHAN: Well you're definitely going to see it in food and any kind of something you buy in the supermarket. For instance, what they're doing is they're keeping the price of toilet paper the same, but reducing the number of sheets in the toilet paper roll. They're also you know, cutting back on how much macaroni and cheese they put into the macaroni and cheese box. So they're basically keeping the prices the same and withdrawing from you the amount that they're selling and not making a big deal about how much they're cutting back on what you're actually buying for you money.

CHIOTAKIS: Analyst Peter Cohan with us this morning. Thanks.

COHAN: Thank you.

About the author

Steve Chiotakis was the host of Marketplace Morning Report until January 2012.

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