Bigger Bills: With Costs Rising, Companies Move To Increase Prices; Mix of Inflation, Slowdown Poses Challenge for Fed; Energy Takes Broad Toll; Dow Surges on GDP Figures
After years of caution, companies are raising prices on a range of consumer products, from cereal and beer to washing machines and toilet paper.</br></br>This past week, cereal-maker Kellogg Co. and brewer Anheuser-Busch Cos. both said prices on their products are heading up. Airlines, after a period of cutting back, are flying with full planes -- and charging more for seats. Cigarettes and tissues are getting more expensive, and soon cruises may too.</br></br>Broadly, consumer prices are rising more quickly than at any time in the recent past, after years in which many consumer-good companies complained they had no ability to raise prices to cover costs or increase profit margins. On Friday, the government reported that its index of core personal consumption prices -- the gauge the Federal Reserve watches most closely -- rose at an annualized rate of 2.9% in the second quarter. That was the highest since 1994. Much of that rise has been driven by a surge in rents, but goods prices also now appear to be turning up.</br></br>Meanwhile, real growth in gross domestic product -- a broad measure of economic activity, adjusted for inflation -- slowed sharply to a 2.5% seasonally adjusted annual rate. In the first quarter, it was a strong 5.6%.</br></br>Stocks rallied Friday in part on the hope that the GDP slowdown might persuade the Federal Reserve to pause at its Aug. 8 meeting in its campaign to raise short-term interest rates, which have gone to 5.25% from 1% in June 2004. The Dow Jones industrials surged 119.27 points, or 1.1%, while the Nasdaq was up 1.9%.