Retail, restaurant prices rise with labor costs

Retailers and restaurants are raising consumer prices to help compensate for higher labor costs, which increased the most in almost three years during the second quarter. Fifty-three percent of these companies with annual sales of $10 million to $500 million have lifted prices during the past 12 months, up from 32 percent a year ago, according to a quarterly survey by Barlow Research Associates. This comes as U.S. inflation excluding food and energy costs accelerated at an annual pace of 1.8 percent in July, the biggest such gain in more than a year, according to Labor Department data released Thursday. Unit labor costs for nonfarm businesses rose 1.3 percent in the quarter ended June 30 compared with a year ago, as hourly compensation rose while productivity fell, Bureau of Labor Statistics data show. "This is an early sign that even with high unemployment, labor costs are starting to pick up, giving companies an incentive to raise prices," said Peter Newland, an economist at Barclays Capital. Labor costs are the biggest component of business expenses, he said. Sixty-one percent of the 149 public and private retailers and restaurants in the Barlow survey said they plan more price increases during the next 12 months. This indicates a "significant change" in attitude from the previous year, when 41 percent had such plans, according to John Barlow, president and founder of the Minneapolis business. "Middle-market companies have been aggressive in increasing prices because they're trying to protect profit margins," he said. The average hourly earnings of all U.S. private-sector employees rose 2.3 percent in July from a year ago, the highest level since October 2009, according to the Bureau of Labor Statistics. While the unemployment rate fell to 9.1 percent in July from 9.2 percent in June, it has remained above 9 percent for 25 of the past 27 months. Christopher & Banks raised prices by about 20 percent in May and June, while Casual Male Retail Group bumped prices up 5 percent in the first quarter and made more changes in the second, according to the companies. Meanwhile, diners at BJ's Restaurants and Famous Dave's of America will pay about 2 percent more for some menu items, the companies said.