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Published: Saturday, 9/17/2005

Commodity prices jolted by storm


The wrath of Hurricane Katrina's fury has been showing up at gas pumps for days, but in coming weeks, expect to pay considerably more to heat your home, build that new addition, and stock up your refrigerator.

The Energy Information Administration, for example, predicted that homeowners in the Midwest could expect to pay 71 percent more for natural gas to heat their homes this winter. In the Northeast, heating oil prices will be 31 percent higher.

Steel prices are rising, as are prices for wood, concrete, glass, and other building materials, reflecting supply disruptions and shortages spawned both by damage and outages along Gulf ports and by an anticipated increase in demand for rebuilding.

Food crops were damaged in some areas, but the bigger issue is the cost of getting them from one point to another now that fuel prices for all modes of transport are at record levels.

All this adds to the economic milieu that the Federal Reserve must consider as it weighs nudging up short-term interest rates to keep inflationary forces in check while acting to protect an economy reeling from Katrina.

On one hand, the central bank must consider whether havoc wreaked by the storm could stall the economy. Already, the nonpartisan Congressional Budget Office has estimated that fallout from the hurricane will cost the economy some 400,000 jobs and shave about a percentage point off growth this year.

At the same time, economists expect all those sharply higher costs for energy, labor, and materials - all of which were climbing even before Katrina - will begin working their way into consumer prices, making inflation a worsening concern.

"I am looking for more of a pass-through" of all of those costs to the consumer, said Stuart Hoffman, chief economist for PNC Financial Services Group.

Still, while costs of many key commodities have been rising, their impact on inflation measures is far less profound than that of increased labor costs, which rose at a 4.3 percent annual rate through the end of June, said Richard DeKaser, chief economist for Cleveland-based National City Corp.

For metals producers, Katrina has presented a mixed bag. On the down side, higher energy prices will boost production costs, production at plants in the path of the storm will be crimped and disruptions at the port of New Orleans, a major entry point for iron ore and other raw materials, could also affect metals producers outside the region.

The higher energy prices are expected to curb demand for automobiles and appliances, two crucial markets for metals producers, acting as a sort of brake on the ability of producers to pass through further price increases.

The Block News Alliance consists of The Blade and the Pittsburgh Post-Gazette.

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