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Dow Does it Again...Tack on Another 25%

Written By Brian Hicks

Posted June 25, 2008





Heading into today’s FOMC meeting on interest rates, there is a least one CEO of a major American company screaming for rate hikes.

He is the CEO of Dow Chemical Company, Andrew Liveris.

The last time I wrote about Liveris was less than a month ago, when he decided that his company had no other choice but to raise prices 20% across the board. His input costs (read the price of oil), he complained had simply become too high crushing his margins.

Needless to say he was not in good mood, even though he was now passing some of those costs along to consumers.

Since then it has only gotten worse for Mr. Liveris. His costs continue to rise.

So he hit the news again yesterday, announcing yet another 25% increase in his prices across the board.

Now for those of you counting at home that makes for a 45% increase in prices handed down to the consumer by Dow Chemical in about three weeks.

That has Liveris talking also about rate hikes today.

Here’s what he told the Nightly Business Report’s Suzanne Pratt on the matter yesterday. The full transcript can be read here.

PRATT: As you know, the Federal Reserve is meeting in Washington to discuss interest rate policy today and tomorrow and there’s expected to be an announcement. Do you think a hike in interest rates if that were to come, maybe not at this meeting, but at a future meeting would help with the inflation problem in this country right now?

LIVERIS: Well, I think that’s the only thing monetary policy can do whether it’s here or overseas. Frankly, there’s very few levers left and that’s the only one. You really got to look at the whole interest rate thing as saying it went down all the way down to really help the financial crisis. Now that this energy crisis is affecting consumers and sheer wallet is affecting demand. People aren’t spending. People aren’t driving. Really, you need to look at ways to control what’s happened in the inflationary world and really take the risk that by raising rates, you may actually cause some demand to go week weaker. I think it’s back to where Paul Volcker was in the early ’80s. There’s a real risk here and we’ve got stagflation. You can only break out of it one way and you better take on inflation head-on.

But whether or not Liveris gets his wish today (not likely), hiking prices is nothing more than a business decision for the chemical giant.

Here’s the skinny.

From the New York Times by Abah Bhattarai entitled: Dow Chemical Raises prices for a Second Time in a Month

"The Dow Chemical Company said Tuesday that it was raising prices for the second time in a month to offset a "relentless rise" in energy costs, a sign that companies may increasingly have to pass on price increases to their customers.

The increase of as much as 25 percent – the largest in the company’s history – comes after a 20 percent rise last month that the company said did not go far enough given the continuing surge in energy prices.

Dow, which makes products ranging from pesticides to plastic wraps, also said it would impose freight surcharges of $300 for each truck shipment and $600 for each rail shipment beginning Aug. 1 in the United States. In addition, it will scale back production in plants across North America and Europe.

Andrew N. Liveris, the company’s chairman and chief executive, said the changes were "extremely unwelcome but entirely unavoidable" as oil and natural gas continue to set records. Oil prices are up more than 40 percent this year and have risen $9 a barrel since Dow’s earlier price increase. Natural gas is up more than 70 percent this year.

"There came a point where the surge became so ridiculous that we had to raise prices," Chris Huntley, a company spokesman, said, adding that the latest price increase would affect everything from fabric and cushions to CD cases, Styrofoam and car parts.

Analysts said they expected other companies to follow suit. When Dow announced last month’s increases, it spurred a series of similar increases by other chemical manufacturers, including DuPont and BASF."


It promises to be an interesting year. Let’s hope the Fed gets it right