Companies spanning consumer goods and industrials are responding to cost pressures stemming from the closure of the Strait of Hormuz during the Iran war by raising selling prices on a range of products, according to recent corporate announcements. The moves affect goods as varied as beer, paint, french fries and packaging materials as raw-material and transport costs climb.
Who is raising prices
Boston Beer, Sherwin-Williams, International Paper and Unilever have either raised prices or said they plan to do so to recover higher input costs. The increases are intended to offset more expensive commodities and freight rather than to capture greater volumes.
Unilever has said it expects pricing, rather than volume growth, to drive its sales expansion in the second half of the year as commodity costs rise. Sherwin-Williams announced a planned price increase of 8% effective September 1 to offset higher costs tied to oil-linked materials; the company’s shares rose by more than 8% after the announcement.
Other manufacturers reported similar responses. Illinois Tool Works said price increases implemented in the spring quarter more than covered its higher input costs. Lamb Weston raised prices in North America after rising oil costs pushed up transport expenses and edible-oil costs.
Commodity, transport and packaging pressures
The Strait of Hormuz had been a major conduit for global commodities: about 20% of the world’s oil supply moved through the waterway before the conflict. The route also handled substantial volumes of aluminium, fertiliser and other materials. Disruption to flows via the strait has contributed to a surge in energy costs that has fed through to other inputs and freight expenses.
U.S. crude futures traded near $85 a barrel on Friday, roughly 25% higher than at the start of the conflict. Average U.S. petrol prices rose to about $4.11 a gallon from $2.98 at the beginning of the fighting, reflecting the energy-price shock experienced since the strait’s closure.
Packaging producers are seeing higher costs for plastic, aluminium, recycled cardboard and freight. In July, International Paper, Smurfit Westrock and Packaging Corporation of America announced price increases to offset those rises.
Economic and market relevance
These price increases have provided support for the shares of several manufacturers and consumer-goods companies that implemented them. However, the aggregate impact of higher prices for everyday goods and industrial inputs could put additional strain on household budgets. That, in turn, may complicate the Federal Reserve’s policy outlook: investors who had expected interest-rate cuts are now repositioning to factor in the possibility of higher rates following the energy-price shock.