(photo credit: Thing Three)

“Most” consumer goods are about to get a lot pricier - food, clothing, appliances, you name it. Why? Commodities, demand, and labor! Here’s what that actually means for you…

• The cost of raw materials, like cotton, wheat, and metal, has increased wildly in recent years. These raw materials are traded on exchanges kind of like stocks, but they’re called commodities. Just like stocks, the prices of commodities changes frequently.
• When commodity prices shoot up, it’s more expensive for companies to make their products, and that cost gets passed on to you, the consumer.
• Besides the price of materials, there’s the cost of people. Workers overseas now demand higher wages than they used to, and with more money to spend, there’s an increased demand for certain goods (like cars and meat). That all adds up to more expensive products.
• Retailers have been holding off on raising prices to keep customers during the recession, but they say they can’t hold out anymore.
• Will rising prices lead to inflation? Stay tuned.

Facts & Figures

• Unemployment in the U.S. is still at 9%, and wages have risen less than 2% in the past year
• Some brands planning to raise prices include: Nine West, Anne Klein, Victoria’s Secret, Polo Ralph Lauren, Whirlpool, Kraft, Starbucks, Sara Lee, Brooks Brothers, and Hanes
• Inflation has been low – about 1.4%, but economists expect the rate to rise to 2.5% 2011

Best Quotes

“Consumers are not exactly in the frame of mind or economic circumstances to say ‘Oh, pay whatever they ask.’ There’s going to be pushback.” – Joshua Shapiro, Chief U.S. Economist at MFR Inc.

“These companies are constantly walking a tightrope on how far do I go. Do I offset with price or other cost cuts, or do I just take it and have it eat into my profit margins?” – Jack Russo, Consumer Goods Analyst at Edward Jones

What do you think?

Do you know what goes into the price of the products you buy? Did you ever imagine that the price of popcorn at the movie theater could be connected to weather in the Midwest and a commodites trading floor in Chicago?

Tags: consumer spending, inflation, price levels, raw material