Hurricane Katrina's destruction quickly boosted the costs of building materials, disrupted major commercial shipping systems and sent energy prices soaring. But many companies are absorbing the higher costs rather than raising prices -- for now.
"So far, we have not seen any pass-through" of higher energy and shipping costs, said Michael Niemira, chief economist of the International Council of Shopping Centers. "I still think it will happen. The question is when."
The storm's aftermath will probably drive up prices for housing, groceries, hotel rooms, home insurance and home remodeling, economists said yesterday. But the ability of businesses to raise other consumer prices will vary greatly, depending on the strength of demand for their products, the intensity of competition in their industries and the income constraints of their customers.
Many companies say they can't raise their prices because the competition is too tough.
Douglas M. Roach, a vice president at C.J. Coakley Co., a Falls Church drywall-installing company, said he is resigned to eating higher costs because of Katrina: "If something like this comes along, the price comes out of our bottom line."
Other local construction firms are paying higher prices for plywood, plumbing materials, drywall and concrete, all of which are more expensive in anticipation of a reconstruction boom in the storm-devastated areas.
"These high commodities prices don't necessarily mean higher prices for consumers," said Kenneth D. Simonson, chief economist for the Associated General Contractors, an industry trade group. "Instead they often mean producers and suppliers have to absorb the costs."
Builders of offices, roads, schools and other big commercial projects often have to absorb increases in the cost of materials because they are locked into long-term contracts, Simonson said. More recently, however, many contracts have included clauses allowing for price adjustments in response to rising fuel or asphalt costs.
Home prices, however, are likely to keep rising. With the housing market already booming, the government plans to spend billions of dollars on rebuilding in the Gulf Coast region. Moreover, Katrina displaced hundreds of thousands of people who are now staying in hotels, renting apartments or buying homes elsewhere, putting upward pressure on those prices.
"Clearly, there's a lot of pricing power" in housing, said John E. Silvia, chief economist for Wachovia Economics Group.
Other industries with pricing power are those that do not face global competition, such as private education, health care and other domestic services, Silvia said. If a university's heating bill goes up, it can easily raise tuition the following year.
The airlines, in contrast, can't raise fares enough to cover soaring jet fuel costs. The carriers compete intensely with each other and with other methods of transportation; if they increase ticket prices too much, travelers will drive, take the train or maybe skip trips.
Jet fuel prices are up 33.4 percent from a year ago, the Labor Department reported Tuesday. Airfares increased 8.7 percent in the same period, according to a department report issued yesterday. Since Katrina hit, two more carriers have filed for bankruptcy court protection.
"Although airlines have recently passed through a few price increases, they pale in comparison to the magnitude of the sustained rise in jet fuel prices," said John Heimlich, chief economist of the Air Transport Association.
Well before Katrina struck, energy costs were rising. Consumer prices rose 0.5 percent last month, almost entirely because of a 5 percent increase in energy costs, according to yesterday's report. But the prices of items other than energy and food, so-called core inflation, rose just 0.1 percent last month, for the fourth month in a row. The department said about 90 percent of the prices sampled were recorded before the storm hit on Aug. 29.
Consumer energy prices were up 20.2 percent over the 12 months that ended in August, compared with a 2.1 percent increase in core prices.
As a result, retailers are paying more to transport goods and to air-condition their stores. But they largely have had to keep prices the same or even lower them aggressively in response to competition.
In some cases, retailers are accepting lower profits. But in others, higher energy costs are offset by the falling prices of many consumer goods -- such as computers, electronics and clothing -- from low-wage countries. Also, many companies are trimming other costs and operating more efficiently. Big national retail chains, such as Wal-Mart Stores Inc. and Costco Wholesale Corp., can pressure their suppliers to absorb increases in energy or transportation costs.
Retailers are also well aware that rising energy prices leave many households with less money to spend on other items. After adjusting for inflation, average weekly wages for most workers declined 0.5 percent last month and 1.1 percent in the 12 months that ended in August, another Labor Department report showed yesterday.
Wal-Mart, which has many low-income customers, has said for months that high gasoline prices were depressing its sales growth. Retailers that cater to high-income shoppers, such as Neiman Marcus Group Inc., have reported robust results this year and will be freer to raise prices if they choose, analysts said.
Many consumers have already cut back their purchases. Gasoline demand for the week that ended Sept. 9, which included the Labor Day weekend, fell 4.3 percent from the previous week, according to the Energy Information Administration. U.S. chain store sales fell 0.2 percent last week, the International Council of Shopping Centers said.
Analysts expect the economy to grow more slowly because of higher energy costs, which would make it even harder for businesses to raise other prices.
Still, many companies expect higher prices as a result of Katrina.
"Logically, we expect to see them eventually," said Gregory A. TenEyck, a spokesman for Safeway Inc. "But we haven't seen them yet."