Price inflation affects limited area

Pressure to hike prices remains relatively low. In the 12-month period ending March 2002, product price inflation accelerated in only four industries from the PLANT ENGINEERING factory equipment and tools roundup. Average prices for other hand and edge tools rose 5.6%, tags for pumps grew 2.7%, welding apparatus prices rose 1.9% while average air and gas compressors tags grew 2.7%. All four of these industries, along with five others, enjoyed an A margin grade. That means manufacturing-related margins are near record-level highs, and buyers have some negotiation room to push for lower prices.

A widespread resurgence in inflation for basic metals may begin to threaten the bottom line. In March 2002, prices for aluminum increased 2.7%, while prices for steel mill products rose 2%. Tools producers, however, are being aggressive about protecting themselves. Consider air and gas compressors. Here, increased spending on basic metals helped push per-unit spending on raw materials ahead by 0.13% from February to March. But producers countered this increase with a 0.8% price hike. The cost/price inflation disparity added 39 cents to the bottom line for each $100 of product sold. Margins in the air and gas compressors industry now stand just six cents short of their 1986-2002 record high.

Returning manufacturing-related margins to their 5-yr average level would require air and gas compressor manufacturers to lower average prices by 2.5%. Other industries that can afford to lower prices (and their 5-yr average price targets) include: other hand and edge tools (-4.4%), other hardware (-3.6%), other power transmission equipment (-4.7%), conveyors (-4.3%), hoists and cranes (-3.5%), welding apparatus (-3.5%), and pumps (-3.6%).