Flights Could Cost More In 2012
Jan. 03--In the aftermath of the Great Recession, prices that have risen because of inflation have been a rarity.
But that doesn't mean that prices haven't risen -- and won't again this year.
And in 2012, as many as 11 sectors of the economy might see prices rise. At least that's the prediction of DealNews.com, an online resource for discounted products that recently looked at the tea leaves and came up with a list.
At the top: airline fares.
The reason? Greater demand and fewer available airline seats.
American Express predicts that prices on flights within North America will increase as much as 5 percent for economy seating and as much as 7 percent in business class.
Dealnews.com says that, for European travel, a new "green tax" implemented to reduce emissions will mean an increase of roughly $15 per passenger.
The prediction "seems reasonable," said James Newton, chief economic adviser for Commerce National Bank.
"Airlines have been cutting back on the size of their fleets and trying to cram as many people on a flight as they can," Newton said. "That means all the good bargains are probably gone. The only thing that could help is if the value of the dollar continues to appreciate against, say, the euro. Then we might get a bit of a break."
New models of digital cameras also are predicted to carry higher prices.
The reason: With smartphones standing in as inexpensive cameras, camera manufacturers and retailers are focusing on higher-end digital-camera equipment.
"Lower-cost products just won't come to market, and those that will be out there will be priced more and more for profitability," said Stephen Baker, an analyst at the NPD Group, in remarks to Dealnews.com.
Hard drives and desktop computers also are expected to become costlier.
That might seem strange to consumers, who have become accustomed to seeing prices for electronics drop.
But technology-research firm IHS iSuppli recently reported that disastrous flooding in Thailand, the world's second-largest exporter of hard-disk drives behind China, could lead to shortages -- and, therefore, higher prices.
Desktop computers, meanwhile, are evolving into touch-screen units, and the new features could drive average selling prices up by 30 percent.
Columbus-based economics consultant Bill LaFayette, owner of Regionomics LLC, took issue with the prediction.
"There's a problem you always confront when you're trying to get inflation rates over time -- a change in the quality of the underlying good," LaFayette said. "So, when color TVs became much more common, the question was, how do you reflect that fact? The same thing is happening here, I think. If those more technologically advanced computers come on the market at a very high price, old computers might actually drop a little bit in price because retailers will be trying to get rid of the old equipment."
Food prices are also headed up, according to the DealNews.com prediction, mainly for food bought at the supermarket.
Newton agreed. "Worldwide demand is very strong, and eventually that has to get passed along to consumers."
LaFayette wasn't so sure, agreeing with the U.S. Department of Agriculture forecast, which predicts that inflation in food prices is expected to abate from 2011 levels.
"There's so much uncertainty with food prices because you have bad weather in the spring in a part of a country, all of sudden there are higher prices," LaFayette said. "On the other hand, if there's a good spring, prices might not go up at all."
Back in the tech sector, data plans are expected to be costlier.
Cellphone carriers are scrambling to keep providing enough bandwidth for the exploding smartphone market. To keep data moving quickly, the carriers will continue to spend billions on building out 4-G services -- and that could mean higher prices for data plans, or at least an increase in the shift to tiered data plans from unlimited plans.
"Five years ago, no one ever heard the words iPhone or Android," technology-industry analyst Jeff Kagan wrote recently in his blog. "In the next three years, voice will only account for about 3 percent of network usage. The vast majority of usage will be wireless data. Brace yourselves."
Local governments are getting in on the raise-the-price act. Fees imposed by municipalities, such as for parking meters and dog licenses, are expected to rise nationally. And so will the cost of municipal water service.
"Those fees will continue to go up, especially as municipal governments in Ohio and other states will have to deal with ever-tightening budgets," LaFayette said. "Here in Columbus, our water prices have been going up. That's because of the EPA regulations that force the city to separate its sanitary and storm sewers."
"A lot of cities have aging infrastructure that will have to be updated or out-and-out replaced, sometimes under government guidelines," Newton said. "The good thing is, in those cities, by statute they are not profit centers, they are just trying to keep their financial heads above water, so the prices won't be obnoxiously higher."
At the gasoline pump, some expect prices to return to $4 per gallon, but making a forecast in that area is difficult, Newton said.
"Oil markets are going to be very unpredictable, I think, in 2012," he said. "We may see a nation like Iran saying, 'Give us what we want, or we'll shut down the Strait of Hormuz and drive up worldwide gas prices.' But I don't know if that's going to happen. The OPEC nations and other oil-producing nations depend on oil revenue."
"And natural-resource prices in general depend on the level of demand throughout the world," LaFayette said. "So, if the eurozone economy is slowing and is in recession right now, and if the Chinese economy slows down, and if the U.S. economy grows at a 2 or 2.5 percent rate, it's hard to see where an increase in gas prices comes from."
Similar concerns might affect the price of gold, which the DealNews.com survey expects will rise this year.
"Gold's likely to go up because of the ongoing economic uncertainty," LaFayette said. "There are worries about the eurozone economy; there are also worries about the Chinese economy."
Although the Postal Service is set to raise rates this month, and both FedEx and UPS are increasing rates for small packages, the survey's prediction of an increase in shipping costs might be premature, at least on the consumer level. That's because of the now-ubiquitous free-shipping offers in online shopping.
"Retailers have a love/hate relationship with free shipping," said Ellen Davis of the National Retail Federation. "Someone has to pay, but it's something that shoppers have almost tunnel vision for. They've come to expect it, like low prices."
So, although rates might go up, Newton expects that retailers might continue to eat the cost.
Copyright 2012 - The Columbus Dispatch, Ohio