Some commodity sectors defy low inflation climate
By Staff -- Purchasing, 5/21/1998
In March, "inflation was anything but quiet," in the industrial sector, according to Elizabeth Baatz, editor of the Industry Cost Escalation (ICE)-Alert newsletter from Thinking Cap Solutions of Boston, Mass.Baatz notes, for example, that buyers of corrugated and solid fiber boxes were hit with price increases averaging 2.2% between February and March of this year. For the year ending in March, the PPI for this commodity segment gained 12.2%. "This flies in the face of general business press reports of intense disinflation," Baatz says. In fact, she observes that PPIs rose by more than 2% for 78 of the 318 industries tracked by ICE-Alert.
What is more, Baatz notes, many of the industry segments that have raised prices over the past year have done so with little or no corresponding increases in costs. According to data from the ICE-Alert report, at least 50 industries with rising price averages show "cost buildup ratings" in the very favorable (-100) to moderately favorable (-33) range. A negative cost buildup rating means that industry profit margins are running at higher-than-average levels. A rating of -100 means an industry is operating at its best margins (lowest cost per $100 of product) in the past decade. Upshot: "Buyers of products from these industries have opportunities to negotiate better prices." Despite large price spikes among paper and paperboard mills, Baatz observes that the corrugated and solid fiber-box industry enjoys a record-low cost buildup rating of -100. "In this and 22 other industries, the cost-based foundation for challenging price hikes is strong."
Readers of Purchasing Magazine can obtain the complete ICE-Alert report (dated April 23) by contacting Elizabeth Baatz at Tel. (617) 298-6147, FAX (617) 296-1614, or e-mail thinkcap@delphi.com.
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