2011
’17
’17
2011
’14
2011
’17
’14
Producer-price index, 12-month change
10
%
Total
Foods
5
0
-5
’14
2011
’17
’14
2011
’17
10
%
Household appliances
Construction machinery
5
0
-5
’17
’14
’17
2011
’14
2011
Producer-price index, 12-month change
%
10
Total
Foods
Construction machinery
Household appliances
5
0
-5
’17
2011
2011
’14
’17
’14
’14
’17
2011
’14
2011
’17
Producer-price index, 12-month change
10
%
Foods
Total
5
0
-5
2011
’14
2011
’17
’14
’17
%
10
Construction machinery
Household appliances
5
0
-5
’17
2011
’14
’14
’17
2011
The economic rebound is raising demand for materials like steel, aluminum and copper used to build everything from houses and office buildings to automobiles and smartphones. Prices of steel and aluminum could also rise for U.S. companies if the Trump administration imposes the tariffs it is considering for those metals.
Many companies, including auto maker
Ford Motor
Co.
and heavy-machinery giant
Caterpillar
Inc.,
have pointed to rising material costs as a hurdle in the coming year. Some food wholesalers, retailers and caterers say they are contending with escalating costs for staples such as beef, vegetables and eggs that end up on supermarket shelves, in restaurants and corporate kitchens.
Sysco
Corp.
, the world’s largest food-service distributor, saw overall food inflation of more than 3% during its most recent quarter.
Few economists see inflation taking off, partly because consumer prices gains have been running below the Federal Reserve’s annual 2% target for years.
Yet at 4.1% in January, the unemployment rate was at its lowest level in 17 years, and average hourly earnings for private-sector workers rose 2.9% from a year earlier, their largest year-over-year increase since June 2009. Restaurants, manufacturers and other businesses are now fretting over increased payroll costs amid the tight labor market, especially for skilled workers.
B&G Foods
Inc.
CEO
Bob Cantwell
told a conference recently: “We’re seeing the inflation that the rest of the industry is,” referring to higher packaging as well as transport costs. Increased cargo shipments have led to a nationwide shortage of trucks, forcing many companies to pay more to transport goods or cut back.
The Federal Reserve said in last month’s report on regional economic conditions known as the beige book that companies in several parts of the country “noted increases in manufacturing, construction, or transportation input costs.” Most areas reported modest to moderate growth in prices.
Motorcycle maker
Harley-Davidson
Inc.
has benefited from a weaker dollar in recent months that has helped U.S. manufacturers boost overseas sales. But Chief Financial Officer
John Olin
told analysts last month that the help from the currency exchange will be “more than offset” by expenses including rising steel and aluminum costs this year.
Paint maker
Sherwin-Williams
Co.
said its outlook this year was tempered by industrywide raw-material inflation as high as 6%. Food distributor
on Wednesday reported higher inflation for meat, eggs, and produce during its most recent quarter, and executives at the supplier to restaurants and other businesses expect food costs to continue to grow around 2.5% during the year.
Higher costs are already rippling into broad measures of what manufacturers pay and receive for commodities and other products. The Institute for Supply Management’s manufacturing index in January reported its price index surged to the highest level since May 2011, as 47% of respondents reported paying higher raw-materials prices.
The Labor Department’s producer-price index, a measure of inflation experienced by businesses, increased 2.6% last year. January data are due next week. In 2017, prices of steel-mill products rose 7.8%, while industrial chemicals rose 11.7%, according to the Labor Department.
Food prices were more volatile: raw-milk prices dropped 10% while prices of slaughter hogs jumped 14% and the cost of wheat increased nearly 13%.
“The question is to what extent will that turn into inflation in the retail level,” said
Richard Moody,
chief economist of Regions Financial Corp. Current high corporate profit margins offer companies the capacity “to eat some of these price increases” rather than pass them on to customers, Mr. Moody said.
The overall profit margin of the S&P 500 index was 10.3% in 2017, up from 9.9% the previous year, according to FactSet.
Some companies can pass costs on to consumers and maintain profit margins, but raising retail prices has rarely been an easy task. In fact, in the years of weak inflation and consumer caution following the recession it has been increasingly difficult.
3M Co.
,
the St. Paul, Minn.-based maker of myriad products including Scotch tape and industrial films and adhesives, has signaled it may raise its prices more than expected to offset inflation if it accelerates this year.
Most restaurant companies have been raising menu prices to help offset rising ingredient, labor and rent costs. For instance,
McDonald’s
Corp.
said its overall menu prices in the fourth quarter were up 3% from the year-ago period to help counter increased expenses and protect margins in advance of launching a new dollar menu.
Some food providers are trying to blunt the impact of rising prices by changing their menus.
Philadelphia-based
Aramark
,
which provides food services to colleges, sports facilities and businesses, has swapped out foods such as meat and potatoes for poultry and other options not undergoing such rapid cost increases, Chief Executive
Eric Foss
said in an interview.
Not all companies are concerned about rising ingredient costs. Indeed, prices of some items like cocoa are down while others like shortening are up over last year. Oreo maker
and
Hershey
Co.
, for example, are expecting net commodity costs to be flat this year.
Aluminum products maker
Arconic
Inc.
expects some relief from last year’s surge in aluminum prices. “There’ll be some raw-material costs, but not of the magnitude that we had in 2017,” Chief Financial Officer
Ken Giacobbe
told analysts this week, citing a 30% jump in aluminum prices last year.
—Julie Jargon contributed to this article.
Write to Andrew Tangel at Andrew.Tangel@wsj.com, Harriet Torry at harriet.torry@wsj.com and Heather Haddon at heather.haddon@wsj.com
