Hormuz closure pushes paint, beer, fries prices up 8%

The Strait of Hormuz closure is forcing consumer-goods makers from paint to beer to french fries to raise prices, threatening a fresh inflation cycle that complicates the Federal Reserve's path on interest rates.

Companies including Samuel Adams brewer Boston Beer, Sherwin-Williams, International Paper and Unilever — maker of Dove soap and Hellmann's mayonnaise — have told investors in recent days that they have raised prices or plan to soon to offset costlier raw materials and freight.

"Investors in these particular companies celebrate every price increase announcement, but of course collectively all of these price increase announcements are very bad for the economy, and they are problematic for interest rates," said Adam Josephson of Sakonnet Research.

Benchmark U.S. crude futures traded around $85 a barrel on Friday, up about 25 percent since the war began in late February, when the U.S. began bombing Iran and Tehran retaliated by restricting passage through the strait. Roughly 20 percent of the world's oil supply moved through the waterway before the conflict, along with much of its aluminum, fertilizer and other raw materials. The national average for a gallon of regular unleaded gasoline was about $4.11 on Friday, up from $2.98 at the start of the conflict, while diesel has surged above $5 a gallon.

The price increases have been cheered by investors, who bid up shares of several companies after the announcements. Sherwin-Williams jumped more than 8 percent on Tuesday, its biggest one-day gain in more than four years, after the Cleveland paintmaker said it would raise prices 8 percent effective Sept. 1 to offset rising materials costs including oil-linked inputs. Illinois Tool Works shares shot up more than 10 percent Tuesday after CFO Michael Larsen assured investors that it raised prices during the spring quarter to more than make up for costlier resins.

Inflation Risk Returns to the Fed's Agenda

The wave of increases threatens to reignite inflation just as the Fed weighs the path of borrowing costs. Officials on Wednesday voted 9-3 to leave interest rates unchanged, with the rate-setting panel next scheduled to meet in September. Traders have swung from pricing rate cuts to positioning for hikes in the futures market as the energy shock ripples through the economy, according to CME Group data.

"What we're trying to understand is to what extent are these shocks broadening in their effects, broadening in their impact on prices that are quite far removed from it," Fed Chairman Kevin Warsh said.

The cost of living was already a hot political issue before the conflict, and higher prices on everyday items could become a big factor in this autumn's midterm elections. Household-products maker Unilever attributed less than 15 percent of its first-half sales growth to higher prices, but executives told investors that will likely flip during the remainder of the year. "We expect pricing to lead growth during the second half of the year," Chief Financial Officer Srinivas Phatak told investors.

Packaging Costs Hit Every Corner of the Economy

Few companies will be immune to rising prices for corrugated boxes, which move everything from produce to factory parts around the country. All three of the largest U.S. box makers — International Paper, Smurfit Westrock and Packaging Corp. of America — announced price increases in quick succession in July, citing rising costs for recycled boxes and freight as well as tight supplies after a historic run of containerboard mill closures that eliminated about 10 percent of the country's capacity.

Idaho french-fry maker Lamb Weston Holdings said it raised prices in North America to counteract rising costs for everything but potatoes. Higher crude prices have lifted transportation costs and spilled into the market for edible oils, which motor-fuel makers are guzzling up for biodiesel. "Demand for biodiesel has driven up the cost of most edible oils," finance chief James D. Gray told investors.

Boston Beer executives said more expensive commodities, including aluminum that is also subject to President Trump's tariffs, partially offset price increases last quarter. Aluminum supplies have been reduced because a big chunk of global supply is stuck behind the strait, while plastic bottles and bags are made from oil and natural gas derivatives.

The last time a supply shock of this magnitude hit U.S. consumers was the 2022 energy crisis, when gasoline above $5 a gallon helped push headline inflation to a four-decade high and forced the Fed into its fastest tightening cycle since the 1980s. With crude prices not expected to ease until normal tanker traffic through the strait resumes, the question for the Fed is whether this round of price increases proves as sticky — and whether the September meeting brings the first hike of the cycle.

This article is for informational purposes only and does not constitute investment advice.