Why companies are passing their rising costs onto consumers

Anyone who’s shopped or driven a car in Honolulu in the past year has seen it: the sharp rise in food and gas prices. In a state where the cost of living is already among the highest in the country and where a large percentage of households live paycheck to paycheck, the changes are particularly difficult to bear.

Groceries in Honolulu cost 11.7% more in March than in the same month in 2021, according to the US Bureau of Labor Statistics. Items like grains, meat, poultry and fish were up nearly 15%. Gasoline prices have increased by just under 40%.

In total, the office consumer price index, covering a wide range of goods and services, rose 7.5%, 5.3% excluding food and energy prices, which tend to be unusually volatile.

The US Federal Reserve raised interest rates in March to slow rising costs and signaled that more rate hikes are coming. Meanwhile, economists at the University of Hawaii’s Economic Research Organization are expected to release a report on Monday offering more details on inflation in Hawaii.

Meanwhile, companies said they are feeling the pressure and are starting to pass the costs on to consumers.

“We’ve heard a lot about our members,” said Sherry Menor-McNamara, president and CEO of the Hawaii Chamber of Commerce. “Almost everyone is affected by it.”

Hawaii Gas prices April 2022
Rising gas prices are increasing the cost of living in a state where many are already struggling to get by. Stewart Yerton/Civil Beat

Among the hardest hit are businesses that rely on packaging, which is a big problem for Hawaiian food manufacturers and consumer packaged goods makers.

Sea Salts of Hawaii is a good example. The company produces sea salt at a factory on the Big Island and sells it as a food seasoning and in spa products like bath salt.

Sea Salts of Hawaii uses glass bottles and cans instead of plastic, and bottle prices have risen dramatically, said company owner Sandra Gibson.

“Tin containers from the mainland went from $0.53 in 2017 to $0.65 in 2021 and then drastically to $0.78 in 2022,” Gibson said in an email. “Our popular mini 2 oz. Glass bottles went from $0.22 in 2017 to $0.25 in 2021 and now we pay $0.28 each.

Honolulu CPI March 2022
Like the rest of the country, prices in Hawaii have risen sharply over the past year, according to the US Bureau of Labor Statistics’ Consumer Price Index. Bureau of Labor Statistics

The cost of shipping packaging materials to Hawaii has also increased.

A few years ago, shipping three pallets of containers from Seattle to Honolulu cost $1,554, she said. Now the same shipment costs nearly $2,500.

Result: Gibson has no choice but to raise its prices.

“For the most part, we hadn’t raised our prices at all since we started,” she said in an interview. “But we recently had to do it.”

For some, rising gas prices are the tipping point

Wai Meli, a Big Island honey company, is set to do the same, said Kawika Sebag, owner and co-founder of the company. It’s not that the cost of producing honey has gone up that much, Sebag said. But the packaging material has.

“Glass has gone up 10% to 35%, and the lids we use have also gone up in price, some of them twice as much,” he said. Even the price of printed labels has increased.

But the killer was the cost of filling Wai Meli’s four vehicles for deliveries and farming operations.

“We’ve done our best not to change our price throughout the pandemic, and I think it just has to do with our proximity to our customers and our retailers,” he said. “But we will soon be raising our prices, and that has to do with the price of fuel.”

“Unfortunately, it’s the gas that’s kicking our ass right now,” he said.

Gabriel Sachter-Smith
North Shore banana producer Gabriel Sachter-Smith said prices for fertilizers, fuel and building materials are driving up his operating expenses, but also labor costs – although worse is also affected by rising food and fuel costs. Stewart Yerton/Civil Beat/2021

When basic things like gas and food cost more, workers need higher wages to get by, said Gabriel Sachter-Smith, a banana scientist and farmer who runs Hawaii Banana Source in Haleiwa. So it’s not just the costs of fertilizer and lumber for a new packing shed that have gone up, he said. Salaries too.

“Inflation affects everyone, and we are still paying people salaries,” he said.

If the US central bank’s interest rate hikes work as expected, prices should stabilize over the course of the year.

On March 22, the Federal Open Market Committee of the Federal Reserve raised the interest rate that banks charge each other for short-term loans by 0.25%. This is the first increase since 2018, and the Fed has signaled further increases this year.

Although the Federal Reserve only controls the federal funds rate, raising the rate affects what lenders charge consumers and businesses to borrow money. The Fed’s overall goal is to slow consumer and business spending so that the economy lands softly without falling into a recession.

The question for companies is whether their costs will go down.

Gibson expressed skepticism.

“Sellers are all saying their prices are going to come down,” she said. “But it’s rare that things go wrong.”

Struggling to get by» is part of our series on «Hawaii’s Changing Economywhich is supported by a grant from the Hawaii Community Foundation as part of its CHANGE Framework project.

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