Procter & Gamble says it'll raise prices in September. Is inflation set to surge?

Procter & Gamble is giving fair warning to consumers: Expect higher prices this fall for some of its products, ranging from baby supplies like Pampers to feminine hygiene products such as Tampax. That in itself wouldn't cause alarm, except that P&G follows several other consumer-goods companies that have told shoppers to brace for higher costs.

Such announcements are fueling concerns that inflation may be set to rise, an issue that had already been on economists' minds given the trillions that have been pumped into the economy through several stimulus packages. 

Because U.S. households are now sitting on $1.6 trillion in additional savings, thanks to all that stimulus aid, some economists have raised concerns that the economy could overheat once fully open. A rush to buy plane tickets, clothing and vehicles could spark inflation, in other words.

Inflation has been tame in recent years, hovering at about 2% annually since the Great Recession in 2008. But some Gen Xers and baby boomers may remember the inflationary decade of the 1970s, when inflation rose by double-digits in some years, painfully eating into the purchasing power of U.S. households. P&G rival Kimberly-Clark has also said it plans to boost prices, while there are emerging anecdotes of businesses facing higher costs and passing those onto consumers, analysts at Goldman Sachs noted in a recent research report.

"Some of the reported price increases are quite large, which has fueled concern about a sharp rise in inflation," the analyst. "Other companies have announced that they plan to increase consumer prices, often to offset higher commodity, shipping, or labor costs or to make up for regular price increases that they forwent during the pandemic."

Other companies that have recently announced price increases include: 

• Owens Corning, with a 5% to 7% price increase on shingles and other roofing products this month
• Mohawk Industries, with an increase of 3% to 8% on its furniture
• Shake Shack, which is testing a 5% price increase
• McKesson, projecting a mid-single-digit increase on its pharmaceutical products

The question is whether these announcements will translate into higher inflation, Goldman noted. To examine that possibility, its analysts examined 100,000 earnings calls over the past 10 years from Russell 3000 companies — which includes most of the U.S. equities market — to track price change announcements during that time. It then matched that against the Personal Consumption Expenditures price index, or PCE. 

Their analysis found that while corporate price hikes track the official inflation measure, they only forecast inflation in a few categories, including airfares, food and food services — hardly the entire measure of goods and services. Plus, after controlling for other issues that impact inflation, like wage growth or oil prices, the link between corporate price hike announcements and inflation is "significantly reduced," they added.

In their view, consumers are likely to see a "somewhat faster pace of price increases in coming months, driven by supply chain disruptions and a post-reopening demand surge, but not a spike in inflation." In other words, get ready to pay more for some items — but overall, inflation should stay at a relatively tame level.

P&G price hikes

As for P&G, consumers should expect higher prices in mid-September for its baby care, feminine care and adult incontinence products, with increases in the mid-to-high single-digit percentages. 

Still, some consumers may have already felt the impact of higher prices, ranging from the grocery store to the gas pump. The Consumer Price Index (CPI), another measure of inflation, rose 2.6% for the 12 months ended March 2021, the biggest annual increase since August 2018. 

Food prices rose at a faster pace than overall inflation, jumping 3.3% over the past year, according to federal data. Meat, fish and eggs have jumped 5.4% during that time. And gasoline prices have increased more than 22% since last March, when the pandemic shuttered the economy and cut demand for fuel.

That's already higher than the Federal Reserve's inflation target of about 2%, with Fed Chairman Jerome Powell telling "60 Minutes" that the central bank is taking a wait-and-see approach, although he noted it's unlikely that interest rates — a key lever to slow down an overheated economy — would rise anytime soon.

"What we said was we want to see inflation move up to 2%," Powell said earlier this month. "And we mean that on a sustainable basis ... But then we'd also like to see it on track to move moderately above 2% for some time. And the reason for that is we want inflation to average 2% over time. And when we get that, that's when we'll raise interest rates."