Big names likely to follow Dow on price increases

Dow Chemical Co, the largest US chemical maker, may not be the last to raise prices this year because of soaring raw materials costs.

Monsanto Co, Hershey Co, General Mills Inc and Avery Dennison Corp may follow suit, according to data compiled by Bloomberg. They're among 11 companies in the Standard & Poor's 500 Index that increased their so-called LIFO reserve, which captures rising inventory costs, by at least 20 percent over the past four quarters.

With oil and commodity prices at record highs, companies will be forced to pass on higher costs, analysts said after Dow Chemical announced on Wednesday it will raise prices by the most in its 111-year history. That will contribute to inflation, and may prompt the Federal Reserve to raise interest rates for the first time in four years.

Avery Dennison, the world's largest label maker, tripled its LIFO reserve to $76.4 million, the most of any company in a search of Bloomberg data. Hershey, the candy maker; General Mills, the seller of breakfast cereals including Cheerios; oil company Hess Corp; and Precision Castparts Corp, a maker of metal components, increased their reserves more than 60 percent.

Monsanto, the world's biggest seed maker; Occidental Petroleum Corp; Cooper Industries Ltd, which makes electrical products, and media company Meredith Corp increased their reserves more than 30 percent. Chemical company Ashland Inc and drugmaker Eli Lilly & Co boosted reserves more than 20 percent.

LIFO stands for the last-in-first-out method of accounting for the value of a company's products. It means that the most recently acquired materials are the basis for the cost of the goods they sell.

In practice, companies get rid of their older items first, in the FIFO, or first-in-first-out, principle. To account for the difference in the two methods, the companies create a LIFO reserve, which becomes a proxy for the inflation of their costs.

Federal Reserve policymakers estimated in April that consumer prices, minus food and energy costs, will rise this year by 2.2 percent to 2.4 percent, up from a range of 2 percent to 2.2 percent in January forecasts, according to central bank figures released last Wednesday.

Rohm & Haas Co, the world's biggest maker of acrylic-paint ingredients, said on Wednesday that rising energy and petrochemical prices will add a record $500 million in costs.

Agencies

(China Daily 05/30/2008 page16)