“A growing unwillingness among chemical producers to function as an energy shock absorber.”

Dow chemical to raise prices by as much as 20%

It seems that the inflationary pressures of higher energy prices are starting to be felt. This can be seen across other industries; airlines are now charging extra for baggage, and the high price of diesel and fertilizer may keep farmers from increasing production despite high prices, preventing any relief for the world’s poor.

But where are we most likely to see these higher costs passed on to consumers?

The highly suspect core inflation was .4% in April and 3.0% in the last 12 months. Not much of a cause for concern, if accurate, but could this move by Dow be indicative of things to come? Companies may have been hesitant to pass on prices to consumers in the face of fierce domestic and foreign competition, but now prices may have reached the point where the income statement of many companies cannot afford to not pass on some of these costs. Those, like Dow, with enough pricing power to maintain market share with rising prices, will begin to see this as a solution and push that “core inflation” further upward along with the rapid rise in energy and food. As more companies move towards this strategy, it will be easier for others to follow suit, and they will be able to survive at the expense of the end consumer.

Regardless of the resilience of corporations, can truckers do anything but drive slower and watch their margins shrink? Can farmers do anything but pray that food prices remain where they are? Trouble among either of these groups and others that cannot control the price they receive for their goods and services could cause catastrophic problems.

A transition away from trucking through re-investing in rail and local sourcing may be an effective way of making us less vulnerable to energy shocks, but what about the prospect of high food prices? Reducing meat consumption and home gardening may be good solutions on a personal level, but the food riots seen in the developing world in recent months were likely only the start of things to come.

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