Businesses stung by higher bills for gasoline, electricity and other items are being forced by competition to largely absorb these costs and operate more efficiently, rather than pass them on to consumers through higher prices.
Wholesale prices jumped twice as fast as consumer prices last month, the Labor Department reported in a pair of reports this week, adding to other signs of inflation pressures in the briskly growing U.S. economy.
Retail stores, for example, are paying more to truck their merchandise and air-condition their stores. But retail clothing prices have plummeted the past two months, while auto dealers have offered "employee discounts" to draw shoppers into showrooms. Prices fell for televisions, audio equipment and computers last month.
"Passing these costs on to consumers is the last option. . . . There's too much competition out there," said Scott Krugman, a spokesman for the National Retail Federation. Instead, businesses are using new technology and business practices to manage inventory more efficiently, trim utility costs and control transportation expenses.
Prices paid to manufacturers for finished goods climbed 1 percent in July, the fastest increase since October, as measured by the Labor Department's producer price index, released yesterday. That was double the 0.5 percent rise in the department's consumer price index, reported Tuesday.
Producers' energy costs rose 4.4 percent last month, driven by increases in gasoline, diesel fuel, electricity and natural gas. Consumers' energy costs rose less rapidly, by 3.8 percent.
Many truckers, delivery services, airlines and other businesses have added fuel surcharges to recover some of their rising costs. But several say they would lose customers if they raised retail prices enough to cover all the increases.
Several money-losing major airlines, for example, have raised fares recently, but by nowhere near enough to keep up with soaring jet fuel costs, said John Heimlich, chief economist for the Air Transport Association, an industry group.
Airfares rose 1.7 percent in July, while jet fuel prices surged 16.8 percent, according to the two Labor Department reports.
"If we were passing these [higher fuel costs] through, we'd be reporting profits . . . and we're not," Heimlich said.
UPS Inc., the parcel delivery service, has tacked a 9.5 percent fuel surcharge onto air and international shipments and a 2.75 percent charge onto ground shipments, but that "doesn't cover everything," said spokesman Steve Holmes. "We look at this thing from a competitive standpoint . . . and about what is the right thing to do in maintaining relationships with customers."
The PPI measures changes in prices paid to manufacturers for goods that are ready for resale to consumers and other businesses. The 1 percent increase last month compared with a flat reading in June.
Businesses managed to pass some of their higher production costs on to other businesses. After excluding food and energy prices, the "core" PPI rose 0.4 percent in July, reflecting increases in the costs of construction machinery, aircraft, tires, autos, drugs, office furniture and other goods. That compared with a 0.1 percent decline in June.
Many companies take advantage of the competition to resist producer price increases.
Costco Wholesale Corp., the international chain of membership warehouses, uses its significant buying power to press its suppliers to hold down their prices, said Chief Financial Officer Richard A. Galanti. But "once a price increase is passed on to us, we still operate in a competitive environment. We're always going to be the last one to raise it."
Costco's sales have remained strong as gas prices have marched upward, suggesting it is benefiting from consumers' efforts to cope with high energy prices by seeking bargains elsewhere, Galanti said.
But "at some point," he added, as producers raise a price, Costco will have "no choice but to raise it" as well.