Marages,Inflation,Stockpiling and Ben Bernanke

Companies contending with rising commodity prices are stockpiling rubber tires, cotton clothing and other goods, a maneuver that is aimed at insulating them from inflation but also could contribute to it. Purchases made more because of perceived inflationary pressures than a response to demand are important because they signal that inflation expectations are climbing. Economists often focus on... [more]

Companies contending with rising commodity prices are stockpiling rubber tires, cotton clothing and other goods, a maneuver that is aimed at insulating them from inflation but also could contribute to it. Purchases made more because of perceived inflationary pressures than a response to demand are important because they signal that inflation expectations are climbing. Economists often focus on inflation expectations, because they can spur people to speed up their purchases, in turn driving prices higher. "The price increase then becomes a self-fulfilling prophecy," said Zach Pandl, an economist at Nomura Securities. Once the cycle ends, prices can collapse, he said. The hardest part is pinpointing when this cycle begins and figuring out when to step in to quell it. John Anton, Anton Sport's founder, saw the price of cotton shooting up, and decided to act. Last month, when his T-shirt suppliers warned about the fourth price rise in six months, he borrowed $300,000 through his home-equity line of credit and bought more than a year's supply. Mr. Anton typically has about 30 boxes of shirts on hand at one time, but now has more than 2,500. "It just kind of clicked that I can borrow at 2.45%, and if cotton is going to go up between 10% and 12%, why wouldn't I do this?" Mr. Anton said. Cotton prices rose 92% last year, and are up 22% this year. Monro Muffler, a Rochester, N.Y., company that operates nearly 800 stores in 19 states, moved up purchases as well, mostly to get ahead of cost increases, according to company officials. Total inventories were up 11% from March to December, climbing to $95.6 million from $85.8 million, and about two-thirds of that increase was due to advanced buying, said John Van Heel, Monro's president. "Buying ahead of cost increases is a normal part of our management of the business," said Mr. Van Heel, one strategy he said Monro used more in 2010 than in the prior year. Manufacturers' inventories have risen for the past seven months through January, according to the Institute for Supply Management. But Norbert Ore, who runs the institute's manufacturing survey, said that is mostly companies restocking to meet rising demand. Nonetheless, the January survey showed that prices for roughly two dozen commodities, from aluminum to sugar, were rising, while none showed signs of falling. Two years ago, just four were getting more expensive, and 15 were falling. http://online.wsj.com/article/SB10001424052748704775604576120533736097682.html [less]