Not enough to worry about? Try inflation

The stock market's down, jobs are tenuous, and a recession looms.

What else could go wrong?

How about a little inflation?

The nation's central bankers are still worried about rising commodity and consumer prices, even as they fight a separate battle to prop up jobs, stocks and the home-building business.

When it cut interest-rate targets Wednesday for the second time in 10 days to ward off a recession, the Federal Reserve's Board of Governors warned: "It will be necessary to continue to monitor inflation developments carefully."

Also that day, the Commerce Department said inflation rates rose in the fourth quarter, to 3.8 percent, from 1.8 percent in the third quarter, as oil, food and import costs rose despite the business slowdown.

"Inflation is higher, and the consumer environment is a little tougher, and that always leads to a tougher competitive environment," Jeffrey Noddle, chief executive officer at Acme Markets' owner SuperValu Inc., told investors at a January conference call. Acme is the Philadelphia area's largest supermarket chain and one of its biggest employers.

To cope with higher prices, some customers have been "trading down" from stores like Acme to SuperValu's no-frills Save-A-Lot outlets, Noddle added. "They are attractive to more stressed consumers," he said.

Comcast Corp., the largest U.S. cable company, is also feeling pressure from consumers who are having trouble making ends meet.

"There are households who cannot afford $40 or $42 a month for high-speed dial-up service," Michael Angelakis, chief financial officer of Philadelphia-based Comcast, acknowledged at a Citigroup investor conference Jan. 9, after an investor said he worried the company's monthly service fees were so high that they were no longer "recession resistant."

"We don't want to lose that customer, so we've introduced a lower-priced Comcast economy service," Angelakis said. The company hopes "that people who are under some financial stress won't leave."

Drug-distributor AmerisourceBergen Corp., of Wayne, expects brand-name drugmakers to boost prices "in the 5 percent range during the year," chief executive officer R. David Yost told investors after releasing first-quarter earnings Jan. 24.

SuperValu said more of its pharmacy customers were picking generics instead of higher-priced name-brand drugs.

Half of manufacturers surveyed by the Federal Reserve Bank of Philadelphia said prices rose in January, and 36 percent passed at least part of the cost to their customers, while the rest ate the increase.

At DuPont Co., in Wilmington, higher prices boosted profit 25 cents a share, outpacing the cost of materials and other variable costs, which rose 19 cents a share, chief financial officer Jeffrey L. Keefer said in a conference call last month.

DuPont makes auto paints, crop seeds, bulletproofing, and hundreds of other products.

The decline in the U.S. dollar helped DuPont as the company's sales in Asia, Latin America and Eastern Europe have been growing more rapidly than its U.S. sales, said spokesman Carl Lukach in an interview.

January was a month to announce price increases. Among Philadelphia-area companies, Hershey's chocolates, Rohm & Haas paint additives and Hercules plastics all cost more after new prices were posted during the month.

Nationally, Kellogg Co. said breakfast-cereal prices were up as foreign demand drove wheat futures to record levels; Kraft Foods Inc. said dairy prices were boosting the cost of its cheese-like consumables; and Procter & Gamble said it would boost prices 6 percent or more on soaps and cleaners.

Pilgrim's Pride Corp. said high demand for corn as a base for ethanol has made the grain more scarce, boosting chicken-feed costs 24 percent in a year. And Starbucks said it raised the price of a cup of coffee 9 cents last year to meet higher costs.

In Detroit, General Motors chief financial officer Fritz Henderson said prices were likely to rise next year because steel and other materials have been more expensive, despite a slump in U.S. vehicle demand.

Higher fuel and energy prices have also squeezed small businesses, consumers and nonprofits.

"We felt the effect when our annual gasoline allotment from the Delaware River Port Authority ran out in the end of October due to higher prices. We had a couple of months of $1,500 fuel bills," said the Rev. James Von Dreele, executive director of the Seamen's Church Institute, a nonprofit ministry that shuttles 15,000 merchant sailors a year from Delaware River ships to Philadelphia and other towns for hospitality, emergency and advocacy services.

One area where more inflation isn't expected is home prices.

Residential prices fell in 20 of the 25 largest U.S markets in the year ended Nov. 31, the last month for which data were available, RPX Monthly Housing Market Report said Friday.

Prices are likely to fall over the next two years in one-third of the country, including major markets in California, Florida and Nevada, where prices soared in recent years, according to RPX, which is based in New York.

Philadelphia home prices are holding firm, however. The region escaped the worst of those years' home-price inflation, and it's also one of five markets nationally where RPX said home prices didn't fall during 2007.

And, in a separate survey, Philadelphia is one of 19 U.S. regional markets - out of a total of 40 - where prices have an estimated less-than-5-percent chance of falling over the course of the next two years, according to PMI Mortgage Insurance Co.