ARNC Arconic Corporation

By Austen Hufford and Annie Gasparro 

U.S. companies are raising prices on everything from plane tickets to paint, passing on higher costs for fuel, metal and food to their customers after years of low inflation.

Clorox Co. said it raised prices in the latest quarter on such products as cat litter, and Coca-Cola Co. as well reported higher prices for the quarter. Other airlines, manufacturers and food makers also have announced price hikes over the past week.

The higher prices have effectively ended a long period of low inflation that led the Federal Reserve to keep short-term interest rates near zero for years.

"We think 2019 will be more inflationary than we have seen historically since the recession," Kellogg Co. Chief Executive Steve Cahillane said in an interview Wednesday.

It is a tricky moment for the U.S. economy. Unemployment is at the lowest point in decades, and economic growth is strong. Now inflation is near the Fed's 2% target, but price rises could pick up if pressure from labor shortages and tariffs intensify in a still-robust economy. Alternatively, other factors could offset these pressures, including the stronger U.S. dollar, which makes imports cheaper.

Oreo cookie and Ritz cracker maker Mondelez International Inc. plans to raise prices in North America next year. Chief Executive Dirk Van de Put said in an interview Monday that consumers and retailers in the region have become more amenable to paying more.

"The consumer environment is strong," Mr. Van de Put said.

The rising costs companies face are various. Mondelez said price hikes on some of its cookies and crackers are in response to rising ingredient and transportation costs. Airlines are paying about 40% more for jet fuel than a year ago. Trucking costs were up 7% annually in September, as trucking companies passed along their own higher labor costs. Private-sector wages and salaries in the September-ended quarter rose 3.1% from a year earlier, the strongest gain since 2008, the Labor Department said Wednesday.

Meanwhile, U.S. manufacturers are paying roughly 8% more for aluminum and 38% more for steel than a year ago as the industry has adjusted to tariffs the Trump administration levied on imports of those metals. Also, a 10% tariff the administration imposed in September on $200 billion worth of various goods from China is weighing on businesses that buy those imports.

Steven Madden Ltd. said this week it was raising prices on handbags and other products it imports from China and that it would shift production to other countries to avoid the tariff. The shoe maker said prices on goods made in China could rise up to 10% at company-owned stores.

"These are all things that point to prices going up," said Diane Swonk, chief economist at Grant Thornton. "We might see a pop of inflation in the first quarter."

Sensing that consumers are getting used to higher prices, some companies are also charging more to improve profits. Arconic Inc. said it had widened operating margins on its rolled-aluminum products by charging more as the tariff pushed up prices overall.

Apple Inc. raised prices on new MacBook Air and iPad Pro products by about 20% and 25%, respectively.

"This pickup in inflation is coming from strength in the domestic economy," Barclays economist Blerina Uruci said. The bank predicts core U.S. inflation, which excludes energy and food prices, will reach a post-recession high next year.

At some point, higher prices could damp the economy's recent strength. Investors worry that a pickup in inflation will prompt the Fed to raise interest rates more quickly to prevent the economy from overheating.

Rebekah Tull, an interior designer for Whiski Kitchen in Royal Oak, Mich., said she is paying 15% more for Chinese-made quartz countertops and 10% more for imported cabinets because of tariffs. Higher supply costs added $500 to one client's $25,000 renovation recently.

"It's going to be more of a challenge to get the looks they see on Pinterest for their budgets," she said.

Businesses including Coke and major U.S. airlines have said their higher prices aren't denting demand.

"The economy is healthy," Delta Air Lines Inc. Chief Executive Ed Bastian said in September. "To the extent oil prices were to continue to rise, we expect to be able to pass along the cost of that."

Delta, JetBlue Airways Corp. and American Airlines Group Inc. have all raised fares or fees to cover higher fuel costs.

Some smaller airlines say they can't risk alienating customers with higher fares. Budget carrier Allegiant Travel Co. said its passengers were more sensitive to price hikes than those of big carriers. Allegiant is cutting some off-peak flying to trim costs.

Paint makers Sherwin-Williams Co. and PPG Industries Inc. in recent weeks said they would keep raising prices next year to cover the steeper climb in costs for ingredients such as titanium dioxide, a pigment used to make paint white. Sherwin-Williams raised prices in its own stores by as much as 6% in October.

"Raw material inflation has been unrelenting and accelerating," Sherwin-Williams Chief Executive John Morikis said last week.

Some restaurant companies are raising prices even as they try to attract customers with deals. McDonald's Corp.'s 2.4% same-store sales growth in the U.S. in the third quarter was fueled by higher-priced burgers. Brinker International Inc. said it raised the price of the two-entrees-and-an-appetizer deal at its Chili's Grill & Bar chain to $25 from $22.

The Habit Restaurants Inc. raised prices by 3.9% in late May. The upscale burger chain beat sales expectations for the third quarter, but the growth was driven entirely by price hikes, as traffic fell by 3.4%.

Food makers had struggled earlier this year to raise prices because supermarket chains and online grocery services insisted on holding down prices as they fought for market share.

Kellogg Co. and Hershey Co. are using other tactics to make more from their products.

Kellogg released a chocolate variety of its Thick & Fluffy Eggo waffles and priced it 12% higher than similar products.

"The days of straight list-price increases are gone," Mr. Cahillane said. "It would lead to a decrease in consumer demand."

Hershey said it will sell candy in new packaging next year at higher prices per ounce.

Chief Executive Michele Buck said in an interview last week that retailers are more willing to raise prices now because consumer spending and economic growth have risen.

"Retailers understand that when costs go up, something has to give," she said.

Cheryl King, a 50-year-old personal shopper in Chicago, said she has noticed slightly higher prices on some groceries, especially the gluten-free and organic foods she buys for her two kids. But she said she and her husband, a surgeon, haven't changed their shopping list.

"I try to look for sales or coupons, but we're doing OK. We're not pinching pennies," she said.

Julie Jargon contributed to this article.

Write to Austen Hufford at austen.hufford@wsj.com and Annie Gasparro at annie.gasparro@wsj.com

(END) Dow Jones Newswires

October 31, 2018 14:13 ET (18:13 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.