Health-care law likely to remain intact under divided Congress, at least for now
(editor note:
it would have been great if the DEMS had of repealed GWB wars!)
Fresh off their triumph in the midterm elections, Republican leaders are vowing to do whatever it takes to repeal the new health-care law. In an interview with Fox News on Thursday, presumptive new House speaker John A. Boehner (R-Ohio), promised that in addition to a straight-up repeal vote, "there's a lot of tricks up our sleeves in terms of how we can dent this, kick it, slow it down to make sure it never happens. And trust me, I'm going to make sure this health-care bill never ever, ever is implemented." We examine the Republicans' prospects for success.
Can Republican lawmakers repeal the law?
Chances are slim to nil, at least through 2012. Although Republicans have regained control of the House, they will remain in the minority in the Senate. So it's unlikely that Congress could pass a repeal bill. But even if that were to change, as long as President Obama remains in office, it's a safe bet that he would veto such a measure.
What about repealing parts of the law?
Among the discrete provisions Republicans have discussed putting on the chopping block is the "individual mandate," which requires virtually all Americans to obtain health insurance or pay a tax penalty. But any effort to strip the law of a provision that Democrats and the president consider essential to its overall functioning is likely to suffer the same fate as an outright repeal bill. Without the individual mandate, for instance, the law's requirement that insurers stop denying coverage to people with preexisting conditions or set annual limits on benefits could fall apart because the risk pool could be skewed toward the sick.
On the other hand, Republicans could succeed in eliminating unpopular aspects that are less central to the law. A case in point is the "1099" provision, which will require businesses to greatly expand their reporting to the IRS of any goods and services they buy. The measure was intended to raise money for the law by helping the IRS clamp down on tax evasion. But many small businesses say that complying with it will prove costly and onerous. Democrats and the president have expressed a willingness to modify or repeal it, as long as Congress finds an alternate funding source.
The Republicans' majority in the House will give them the power of the purse. Could they use it to defund the law?
To some extent. But here, too, Republicans' influence will be limited. The most substantial federal expenditures required by the law - the expansion of Medicaid contributions to help states cover a greater share of the poor, for instance, or federal subsidies to help individuals buy private insurance - won't begin until 2014. And their funding sources were essentially locked in and automated by the law and will not be subject to Congress's annual appropriations process over the next two years.
How about defunding federal agencies responsible for implementing the health-care law, such as the Department of Health and Human Services or the IRS?
Opinions vary about the probable success of this tactic. The Congressional Budget Office has estimated that over the next 10 years, the administrative costs of implementation could run from $5 billion to $10 billion each for HHS and the IRS. But it's unclear how much of that would need to come from budget increases. Both agencies have managed to make do with their existing budgets. HHS Secretary Kathleen Sebelius has said that even if her agency were not optimally funded over the next two years, she could find the staff and the means to continue implementing the law. Some conservative analysts are less sanguine, noting that the law requires that by 2013 HHS not only assess the readiness of states to run exchanges through which individuals and small businesses can buy private insurance, but that the agency be ready to step in with a federal version in case any states are found lacking.
House Republicans have also made clear that they plan to hold vigorous oversight hearings on the health-care law. How significant could those hearings prove?
In the long run, the Republicans' newfound opportunity to hold hearings showcasing what they consider downsides of the law could be their most effective means of dismantling it; the hearings could lay the groundwork for a broad-based public repudiation of legislation that still divides Americans. Among others, Republicans hope to spotlight business owners who say they are hiring fewer workers because they cannot afford to offer the health insurance the law mandates, and individuals who say their premiums have skyrocketed because their insurers have been required to offer broader protections. But Democrats and the White House could also push back, using the hearings as an opportunity to sell Americans on the benefits of the law.
N.C. Aizenman
Washington Post
Thursday, November 04, 2010
Study: CT scans reduce lung cancer deaths by 20% compared with X-rays
Screening former or current smokers with high-tech scans can significantly cut deaths from lung cancer, according to a long-awaited federal study released Thursday.
The study of more than 53,000 middle-aged and elderly people who either once smoked or currently smoke heavily found there were 20 percent fewer deaths among those who underwent annual screening with a scanning procedure known as a low-dose helical computed tomography (CT) compared with those who got standard chest X-rays.
The findings were so striking that the National Cancer Institute, which helped sponsor the study, halted the National Lung Screening Trial early after a panel of experts notified officials about the clear results of an interim analysis.
"Lung cancer is the leading cause of cancer mortality in the U.S. and throughout the world, so a validated approach that can reduce lung cancer mortality by even 20 percent has the potential to spare very significant numbers of people from the ravages of this disease," said NCI Director Harold Varmus.
Lung cancer strikes more than 196,000 Americans each year and kills more than 159,000, accounting for nearly one-third of all cancer deaths. Although significant advances have been made in reducing deaths from other leading cancers, such as breast and colon cancer, lung cancer has remain stubbornly resistent. The new finding marks the first good news about the disease in decades. There are an estimated 91.5 million current and former smokers in the United States, all of whom are at increased risk for lung cancer.
"This is the first time that we have seen clear evidence of a significant reduction in lung cancer mortality with a screening test in a randomized controlled trial," said Christine Berg, who led the study for the National Cancer Institute.
The new findings come after several previous studies have produced mixed results about the usefulness of the screening to try to catch lung cancer in its earliest and most treatable stages. It remained unclear whether the benefits outweighed the risks from radiation from the scans and the dangers, stress and anxiety from unnecessary surgery and other treatment caused by false alarms. But in addition to reducing deaths from lung cancer, the new study found there was a reduction of 7 percent in deaths from any cause among those scanned.
Experts stressed that smoking was the leading cause of lung cancer and the best way to fight the disease was to either never smoke or stop smoking.
"These findings should in no way distract us from continued efforts to curtail the use of tobacco, which will remain the major causative factor for lung cancer and several other diseases," Varmus said.
The study, which started in 2002, involved 53,500 men and women at 33 sites across the country. Participants had to have smoked at least 30 "pack-years," which is calculated by multiplying the average number of packs of cigarettes smoked per day by the number of years the person smoked. They also had to have no signs or history of lung cancer.
The participants were randomly assigned to receive three annual screenings with either low-dose helical CT scans, which are also known as spiral CT scans, or a standard chest X-ray. The CT scans use X-rays to obtain multiple images of the chest. Most hospitals can perform the scans. The subjects were then followed for up to another five years to see who developed lung cancer. Those who were diagnosed received standard treatment.
A total of 354 deaths from lung cancer occurred among the subjects who underwent CT scans, compared with 442 among those who got the chest X-rays - a 20.3 percent reduction in lung cancer mortality.
The findings come as health experts have increasingly been questioning the value of screening for a variety of health problems. In recent years, experts have questioned whether mammography for breast cancer, PSA testing for prostate cancer and Pap smears for cervical cancer were being overused.
The study of more than 53,000 middle-aged and elderly people who either once smoked or currently smoke heavily found there were 20 percent fewer deaths among those who underwent annual screening with a scanning procedure known as a low-dose helical computed tomography (CT) compared with those who got standard chest X-rays.
The findings were so striking that the National Cancer Institute, which helped sponsor the study, halted the National Lung Screening Trial early after a panel of experts notified officials about the clear results of an interim analysis.
"Lung cancer is the leading cause of cancer mortality in the U.S. and throughout the world, so a validated approach that can reduce lung cancer mortality by even 20 percent has the potential to spare very significant numbers of people from the ravages of this disease," said NCI Director Harold Varmus.
Lung cancer strikes more than 196,000 Americans each year and kills more than 159,000, accounting for nearly one-third of all cancer deaths. Although significant advances have been made in reducing deaths from other leading cancers, such as breast and colon cancer, lung cancer has remain stubbornly resistent. The new finding marks the first good news about the disease in decades. There are an estimated 91.5 million current and former smokers in the United States, all of whom are at increased risk for lung cancer.
"This is the first time that we have seen clear evidence of a significant reduction in lung cancer mortality with a screening test in a randomized controlled trial," said Christine Berg, who led the study for the National Cancer Institute.
The new findings come after several previous studies have produced mixed results about the usefulness of the screening to try to catch lung cancer in its earliest and most treatable stages. It remained unclear whether the benefits outweighed the risks from radiation from the scans and the dangers, stress and anxiety from unnecessary surgery and other treatment caused by false alarms. But in addition to reducing deaths from lung cancer, the new study found there was a reduction of 7 percent in deaths from any cause among those scanned.
Experts stressed that smoking was the leading cause of lung cancer and the best way to fight the disease was to either never smoke or stop smoking.
"These findings should in no way distract us from continued efforts to curtail the use of tobacco, which will remain the major causative factor for lung cancer and several other diseases," Varmus said.
The study, which started in 2002, involved 53,500 men and women at 33 sites across the country. Participants had to have smoked at least 30 "pack-years," which is calculated by multiplying the average number of packs of cigarettes smoked per day by the number of years the person smoked. They also had to have no signs or history of lung cancer.
The participants were randomly assigned to receive three annual screenings with either low-dose helical CT scans, which are also known as spiral CT scans, or a standard chest X-ray. The CT scans use X-rays to obtain multiple images of the chest. Most hospitals can perform the scans. The subjects were then followed for up to another five years to see who developed lung cancer. Those who were diagnosed received standard treatment.
A total of 354 deaths from lung cancer occurred among the subjects who underwent CT scans, compared with 442 among those who got the chest X-rays - a 20.3 percent reduction in lung cancer mortality.
The findings come as health experts have increasingly been questioning the value of screening for a variety of health problems. In recent years, experts have questioned whether mammography for breast cancer, PSA testing for prostate cancer and Pap smears for cervical cancer were being overused.
Fed to Spend $600 Billion to Speed Up Recovery (THIS COUL HELP ALOT!)
WASHINGTON — The Federal Reserve, getting ahead of the battles that will dominate national politics over the next two years, moved Wednesday to jolt the economy into recovery with a bold but risky plan to pump $600 billion into the banking system.
A day earlier, Republicans swept to a majority in the House on an antideficit platform, virtually guaranteeing that they would clash with the Obama administration over the best way to nurture a fragile recovery.
The action was the second time in a year that the Fed had ventured into new territory as it struggles to push down long-term interest rates to encourage borrowing and economic growth. In a statement, the Fed said it was acting because the recovery was “disappointingly slow,” and it left the door open to even more purchases of government securities next year.
The Fed is an independent body, its policy decisions separated from the political pressures of the day. But it acted with a clear understanding that the United States, like many other Western countries, seems to have taken off the table many of the options governments traditionally use to give their economies a kick, particularly deficit spending.
The Republicans regained control of the House for the first time in four years in part by attacking the stimulus plan — begun by the Bush administration and accelerated by President Obama — as a symbol of government spinning out of control, contributing to a dangerously escalating national debt.
This political reality has left Washington increasingly reliant on the Fed to take action, though its chairman, Ben S. Bernanke, has said the Fed cannot fix the problem alone.
But in stepping in so aggressively, the Fed is taking risks. The action not only expands the Fed’s huge portfolio of Treasury bonds, it makes it a target of a Congress whose new members include some who are hostile to the Fed’s independent role.
On Wall Street, analysts said the move appeared to be a balancing act that met expectations and stock prices rose.
Ordinarily the Fed’s main tool for spurring economic growth is to lower short-term interest rates. But those rates are already near zero. With no more room to go, it has to find another route to stimulate demand.
That route is to buy government bonds, which increases demand for them and raises their prices, pushing long-term interest rates down. “Easier financial conditions will promote economic growth,” Mr. Bernanke predicted in an essay for Thursday’s Washington Post.
Representative Mike Pence of Indiana, the outgoing chairman of the House Republican Conference, said shortly after the announcement that the Fed was overstepping its bounds. “Diluting the value of the dollar by continually increasing the supply of money poses an incalculable risk,” he said. “Instead, Congress needs to embrace progrowth fiscal policies to stimulate our economy rather than masking our fundamental problems by artificially creating inflation.”
In making that argument, Mr. Pence and his allies are replaying a dispute that permeated Washington in the mid-1930s, when the economy was crawling out of the Great Depression. Conservative Democrats pushed Franklin D. Roosevelt to cut back on spending, and argued for tight monetary policy. Many economists argue that the result was a second downturn just before the outbreak of World War II, but others say the conditions today differ in so many ways that the comparison is misleading.
While the Fed step was telegraphed to the markets in recent weeks, most experts had expected $300 billion to $500 billion in purchases of Treasury debt. Still, the pace — $75 billion a month for eight months — disappointed some investors.
The Fed said it would also continue an earlier program, announced in August, of using proceeds from its mortgage-related holdings to buy additional Treasury debt, at a rate of about $35 billion a month, or $250 billion to $300 billion by the end of June.
So in total, the Fed will buy $850 billion to $900 billion, just about doubling the amount of Treasury debt it currently holds.
If the Fed’s bet is right, lower long-term rates should ripple through the markets, pushing down rates for mortgages and corporate bonds. That could encourage homeowners to refinance into cheaper mortgages, though it would not help the millions of Americans facing foreclosure. It could push businesses to make investments instead of sitting on piles of cash.
In a sign of its willingness to do even more, the Federal Open Market Committee, the central bank’s policy arm, left open the possibility of even more purchases beyond June, saying it would “adjust the program as needed to best foster maximum employment and price stability.”
Only one committee member dissented, for reasons that are similar to the complaints that some Republicans are likely to raise. Thomas M. Hoenig, an economist who is president of the Federal Reserve Bank of Kansas City, said he believed the decision could create more risk for the financial system by enticing too much borrowing.
There are other risks, as well. The actions are likely to further drive down the dollar. That could worsen trade and exchange-rate tensions that have threatened to unravel cooperation among the world’s biggest economies.
Moreover, the Fed is exposing itself to the risk that the assets it has acquired could shrivel in value when interest rates eventually rise. That could reduce the amount of money the central bank turns over to the Treasury each year, and expose the Fed, already vulnerable for its failure to prevent the 2008 financial crisis, to even more criticism.
On Wednesday, the standoff between the parties was on display as the two sides argued over tax cuts and the desirability of government investment to create jobs.
It was this impending gridlock that might have pushed Mr. Bernanke to move, said Laurence H. Meyer, a former Fed governor. “Bernanke has said that fiscal stimulus, accommodated by the Fed, is the single most powerful action the government can take for lowering the unemployment rate, when short-term rates are already at zero,” Mr. Meyer said. “He has nearly pleaded with Congress for fiscal stimulus, but he can’t count on it.”
But Leonard J. Santow, an economic consultant, said he feared that the Fed was reacting to one mistake — the failure of fiscal policy — by adding another. “The main problem is on the fiscal side, and there is nothing wrong with the Fed chairman making budget recommendations and admitting there is not a great deal left for monetary policy to achieve when it comes to stimulating the economy,” he said.
One of the main questions raised by the Fed’s action was whether it had waited too long. While economists disagree on that, the Fed’s announcement completed a U-turn. Earlier, speculation was that the Fed would gradually raise interest rates and tighten the supply of credit, as it would normally do after a recession..
But this downturn and its painful aftermath have been anything but normal. Markets were set back in the spring by the European debt crisis. By late summer, as continuing high unemployment, slow growth and low inflation became clear, Mr. Bernanke became convinced that the Fed needed to act again.
DAVID E. SANGER and SEWELL CHAN
NYTimes
A day earlier, Republicans swept to a majority in the House on an antideficit platform, virtually guaranteeing that they would clash with the Obama administration over the best way to nurture a fragile recovery.
The action was the second time in a year that the Fed had ventured into new territory as it struggles to push down long-term interest rates to encourage borrowing and economic growth. In a statement, the Fed said it was acting because the recovery was “disappointingly slow,” and it left the door open to even more purchases of government securities next year.
The Fed is an independent body, its policy decisions separated from the political pressures of the day. But it acted with a clear understanding that the United States, like many other Western countries, seems to have taken off the table many of the options governments traditionally use to give their economies a kick, particularly deficit spending.
The Republicans regained control of the House for the first time in four years in part by attacking the stimulus plan — begun by the Bush administration and accelerated by President Obama — as a symbol of government spinning out of control, contributing to a dangerously escalating national debt.
This political reality has left Washington increasingly reliant on the Fed to take action, though its chairman, Ben S. Bernanke, has said the Fed cannot fix the problem alone.
But in stepping in so aggressively, the Fed is taking risks. The action not only expands the Fed’s huge portfolio of Treasury bonds, it makes it a target of a Congress whose new members include some who are hostile to the Fed’s independent role.
On Wall Street, analysts said the move appeared to be a balancing act that met expectations and stock prices rose.
Ordinarily the Fed’s main tool for spurring economic growth is to lower short-term interest rates. But those rates are already near zero. With no more room to go, it has to find another route to stimulate demand.
That route is to buy government bonds, which increases demand for them and raises their prices, pushing long-term interest rates down. “Easier financial conditions will promote economic growth,” Mr. Bernanke predicted in an essay for Thursday’s Washington Post.
Representative Mike Pence of Indiana, the outgoing chairman of the House Republican Conference, said shortly after the announcement that the Fed was overstepping its bounds. “Diluting the value of the dollar by continually increasing the supply of money poses an incalculable risk,” he said. “Instead, Congress needs to embrace progrowth fiscal policies to stimulate our economy rather than masking our fundamental problems by artificially creating inflation.”
In making that argument, Mr. Pence and his allies are replaying a dispute that permeated Washington in the mid-1930s, when the economy was crawling out of the Great Depression. Conservative Democrats pushed Franklin D. Roosevelt to cut back on spending, and argued for tight monetary policy. Many economists argue that the result was a second downturn just before the outbreak of World War II, but others say the conditions today differ in so many ways that the comparison is misleading.
While the Fed step was telegraphed to the markets in recent weeks, most experts had expected $300 billion to $500 billion in purchases of Treasury debt. Still, the pace — $75 billion a month for eight months — disappointed some investors.
The Fed said it would also continue an earlier program, announced in August, of using proceeds from its mortgage-related holdings to buy additional Treasury debt, at a rate of about $35 billion a month, or $250 billion to $300 billion by the end of June.
So in total, the Fed will buy $850 billion to $900 billion, just about doubling the amount of Treasury debt it currently holds.
If the Fed’s bet is right, lower long-term rates should ripple through the markets, pushing down rates for mortgages and corporate bonds. That could encourage homeowners to refinance into cheaper mortgages, though it would not help the millions of Americans facing foreclosure. It could push businesses to make investments instead of sitting on piles of cash.
In a sign of its willingness to do even more, the Federal Open Market Committee, the central bank’s policy arm, left open the possibility of even more purchases beyond June, saying it would “adjust the program as needed to best foster maximum employment and price stability.”
Only one committee member dissented, for reasons that are similar to the complaints that some Republicans are likely to raise. Thomas M. Hoenig, an economist who is president of the Federal Reserve Bank of Kansas City, said he believed the decision could create more risk for the financial system by enticing too much borrowing.
There are other risks, as well. The actions are likely to further drive down the dollar. That could worsen trade and exchange-rate tensions that have threatened to unravel cooperation among the world’s biggest economies.
Moreover, the Fed is exposing itself to the risk that the assets it has acquired could shrivel in value when interest rates eventually rise. That could reduce the amount of money the central bank turns over to the Treasury each year, and expose the Fed, already vulnerable for its failure to prevent the 2008 financial crisis, to even more criticism.
On Wednesday, the standoff between the parties was on display as the two sides argued over tax cuts and the desirability of government investment to create jobs.
It was this impending gridlock that might have pushed Mr. Bernanke to move, said Laurence H. Meyer, a former Fed governor. “Bernanke has said that fiscal stimulus, accommodated by the Fed, is the single most powerful action the government can take for lowering the unemployment rate, when short-term rates are already at zero,” Mr. Meyer said. “He has nearly pleaded with Congress for fiscal stimulus, but he can’t count on it.”
But Leonard J. Santow, an economic consultant, said he feared that the Fed was reacting to one mistake — the failure of fiscal policy — by adding another. “The main problem is on the fiscal side, and there is nothing wrong with the Fed chairman making budget recommendations and admitting there is not a great deal left for monetary policy to achieve when it comes to stimulating the economy,” he said.
One of the main questions raised by the Fed’s action was whether it had waited too long. While economists disagree on that, the Fed’s announcement completed a U-turn. Earlier, speculation was that the Fed would gradually raise interest rates and tighten the supply of credit, as it would normally do after a recession..
But this downturn and its painful aftermath have been anything but normal. Markets were set back in the spring by the European debt crisis. By late summer, as continuing high unemployment, slow growth and low inflation became clear, Mr. Bernanke became convinced that the Fed needed to act again.
DAVID E. SANGER and SEWELL CHAN
NYTimes
Chelsea Handler Bound for NBC
Latenight funny lady Chelsea Handler is getting a shot at primetime. NBC has approved a pilot television show based upon her book, Are You There Vodka? It's Me, Chelsea.
The sitcom would be autobiographical and focus on Handler's life in her twenties. The comedienne is quite busy at the moment having just signed up for a new show at E! as well, where her talk show airs.
Plus, Handler is headed to co-star in a film starring Reese Witherspoon.
Deadline Hollywood
The sitcom would be autobiographical and focus on Handler's life in her twenties. The comedienne is quite busy at the moment having just signed up for a new show at E! as well, where her talk show airs.
Plus, Handler is headed to co-star in a film starring Reese Witherspoon.
Deadline Hollywood
Food Sellers Grit Teeth, Raise Prices
Packagers and Supermarkets Pressured to Pass Along Rising Costs, Even as Consumers Pinch Pennies.
An inflationary tide is beginning to ripple through America's supermarkets and restaurants, threatening to end the tamest year of food pricing in nearly two decades.
.Prices of staples including milk, beef, coffee, cocoa and sugar have risen sharply in recent months. And food makers and retailers including McDonald's Corp., Kellogg Co. and Kroger Co. have begun to signal that they'll try to make consumers shoulder more of the higher costs for ingredients.
For food executives, how quickly to pass along higher costs presents difficult choices. Missteps could be costly when the economy remains weak. Many Americans, nervous about high unemployment, have pledged allegiance to their pennies and are willing to trade down on brands, switch supermarkets, opt for Burger King over Applebee's, or stop dining out altogether to save money.
"The big challenge will be, how much can we swallow and how much can we pass along?" said Jack Brown, chief executive of Stater Bros. Markets, a 167-store grocery chain in southern California.
Stater Bros. has seen the prices it pays for cereal rise 5% in recent months. The chain has passed about half the increase on to consumers while making up for the rest by trimming other expenses, such as what it spends on cell phones and delivery truck tires.
Kraft Foods Inc., Sara Lee Corp. and General Mills Inc. already have said they'll raise prices on certain items. Starbucks Corp. backtracked on an August announcement that it would hold coffee prices steady, saying in September it would boost prices of larger and hard-to-make drinks. This week, cereal maker Kellogg hinted that it will be raising prices, without disclosing specifics.
Grocery chains Safeway Inc. and Kroger have said they'll pass supplier increases along to consumers.
Domino's Pizza Inc. is letting consumers decide whether they're willing to pay more. The company is offering two medium, two-topping pizzas for $5.99 each but has recently offered the option of converting one of them to a premium pizza, with more toppings, for an extra $2—a price increase, in effect.
BJ's Restaurants, a casual-dining chain, plans to raise prices early next year by about 2.5%—but only after upgrading its table settings and decor. "In this business, you can't just raise prices without improving the overall dining experience," BJ's chief financial officer Greg Levin said in October. "The guests have too many options to choose from."
Costs are being driven by growing demand for meat in China, India and other emerging markets. That's driven up grain prices, which in turn boost the cost of chicken, steak, bread and pasta. Grain prices also have been nudged higher by drought in Russia, planting problems around the world and speculative trading.
Food prices are rising faster than overall inflation. The consumer price index for all items minus food and energy rose 0.8% over the year to September, the lowest 12-month increase since March 1961, the Bureau of Labor Statistics said. The food index rose 1.4%, however. The U.S. Agricultural Department is predicting overall food inflation of about 2% to 3% next year.
The current pressure is nothing like it was in October 2008, when food prices were rising at an annual rate of 6.3% and some hard lessons were learned when producers passed along those costs: Shoppers switched to private-label products.
For now, Weis Markets Inc., a 164-store grocery chain based in Sunbury, Pa., is holding firm. For the past two years Weis has maintained a "price freeze" on 1,500 staple items. "If we can hold on to the lower prices until the end, and be the last to move up, it's worth being patient," said chief executive David J. Hepfinger.
Kevin Srigley, a senior vice president at grocer Giant Eagle Inc., says, "There is a much stronger sensitivity to price than we've ever experienced, but there are some areas you can't afford not to pass on those costs." Giant Eagle, for instance, has marked up its beef prices to reflect its higher costs.
Wal-Mart Stores Inc. executives told investors last month that they expect "very moderate" inflation next year. For now, Jack Sinclair, Wal-Mart's executive vice president of grocery merchandise, said it would be "difficult" to hike retail prices because demand remains weak.
McDonald's chief financial officer Pete Bensen recently told investors he expects costs to rise 2% in the U.S. and 3% in Europe next year.
"The question will be exactly at what point will we be able to take some of that pricing," he said, adding that the burger chain is likely to raise menu prices sometime next year. The last time McDonald's raised menu prices in the U.S. was in the fourth quarter of 2009, with a 1% increase over the year-earlier period.
Worries aren't all on the low-end. Gibsons Bar & Steakhouse, a three-unit chain in the Chicago area, said that in the last four months, the price it pays for a New York Strip steak rose to $23 per pound from $19 per pound. It's reluctant to pass that cost along. "I think there's a ceiling on how much people are willing to pay for a meal and for an individual piece of steak," said Gregg Horan, Gibsons' director of operations.
Others see more wiggle room. Morton's Restaurant Group Inc., which has seen an uptick in business since last year thanks to an increase in business travel, raised menu prices 2% in July. "We believe we have pricing power...and we believe that our guests are flexible and we have the capacity to do that," Morton's CFO Ron DiNella told investors in September.
Ken Harris, a consumer foods-marketing consultant with Kantar Retail, said some food makers are targeting specific, low price points at retail—such as $1—and reconfiguring package sizes and products to fit the price.
That can backfire when commodity costs rise swiftly. Early this year, Ben Tabatchnick, founder of Tabatchnick Fine Foods Inc., a maker of high-end frozen soups, decided to release a new line designed with a suggested retail price lower than his other products. The 11.5-ounce soups, which started appearing in stores nationwide in October, are smaller than his typical 15-ounce Tabatchnick-brand products and carry a price tag of $1.99.
But in the last two months, Mr. Tabatchnick says his costs for vegetable oils, sugar, dried beans and other ingredients jumped 20% to 30%. "It's going to reduce the [profit] margin dramatically on the product," he says. "We're stuck."
Until spring, that is, when his promotional programs with retailers expire and he says he plans to try to push through price increases.
An inflationary tide is beginning to ripple through America's supermarkets and restaurants, threatening to end the tamest year of food pricing in nearly two decades.
.Prices of staples including milk, beef, coffee, cocoa and sugar have risen sharply in recent months. And food makers and retailers including McDonald's Corp., Kellogg Co. and Kroger Co. have begun to signal that they'll try to make consumers shoulder more of the higher costs for ingredients.
For food executives, how quickly to pass along higher costs presents difficult choices. Missteps could be costly when the economy remains weak. Many Americans, nervous about high unemployment, have pledged allegiance to their pennies and are willing to trade down on brands, switch supermarkets, opt for Burger King over Applebee's, or stop dining out altogether to save money.
"The big challenge will be, how much can we swallow and how much can we pass along?" said Jack Brown, chief executive of Stater Bros. Markets, a 167-store grocery chain in southern California.
Stater Bros. has seen the prices it pays for cereal rise 5% in recent months. The chain has passed about half the increase on to consumers while making up for the rest by trimming other expenses, such as what it spends on cell phones and delivery truck tires.
Kraft Foods Inc., Sara Lee Corp. and General Mills Inc. already have said they'll raise prices on certain items. Starbucks Corp. backtracked on an August announcement that it would hold coffee prices steady, saying in September it would boost prices of larger and hard-to-make drinks. This week, cereal maker Kellogg hinted that it will be raising prices, without disclosing specifics.
Grocery chains Safeway Inc. and Kroger have said they'll pass supplier increases along to consumers.
Domino's Pizza Inc. is letting consumers decide whether they're willing to pay more. The company is offering two medium, two-topping pizzas for $5.99 each but has recently offered the option of converting one of them to a premium pizza, with more toppings, for an extra $2—a price increase, in effect.
BJ's Restaurants, a casual-dining chain, plans to raise prices early next year by about 2.5%—but only after upgrading its table settings and decor. "In this business, you can't just raise prices without improving the overall dining experience," BJ's chief financial officer Greg Levin said in October. "The guests have too many options to choose from."
Costs are being driven by growing demand for meat in China, India and other emerging markets. That's driven up grain prices, which in turn boost the cost of chicken, steak, bread and pasta. Grain prices also have been nudged higher by drought in Russia, planting problems around the world and speculative trading.
Food prices are rising faster than overall inflation. The consumer price index for all items minus food and energy rose 0.8% over the year to September, the lowest 12-month increase since March 1961, the Bureau of Labor Statistics said. The food index rose 1.4%, however. The U.S. Agricultural Department is predicting overall food inflation of about 2% to 3% next year.
The current pressure is nothing like it was in October 2008, when food prices were rising at an annual rate of 6.3% and some hard lessons were learned when producers passed along those costs: Shoppers switched to private-label products.
For now, Weis Markets Inc., a 164-store grocery chain based in Sunbury, Pa., is holding firm. For the past two years Weis has maintained a "price freeze" on 1,500 staple items. "If we can hold on to the lower prices until the end, and be the last to move up, it's worth being patient," said chief executive David J. Hepfinger.
Kevin Srigley, a senior vice president at grocer Giant Eagle Inc., says, "There is a much stronger sensitivity to price than we've ever experienced, but there are some areas you can't afford not to pass on those costs." Giant Eagle, for instance, has marked up its beef prices to reflect its higher costs.
Wal-Mart Stores Inc. executives told investors last month that they expect "very moderate" inflation next year. For now, Jack Sinclair, Wal-Mart's executive vice president of grocery merchandise, said it would be "difficult" to hike retail prices because demand remains weak.
McDonald's chief financial officer Pete Bensen recently told investors he expects costs to rise 2% in the U.S. and 3% in Europe next year.
"The question will be exactly at what point will we be able to take some of that pricing," he said, adding that the burger chain is likely to raise menu prices sometime next year. The last time McDonald's raised menu prices in the U.S. was in the fourth quarter of 2009, with a 1% increase over the year-earlier period.
Worries aren't all on the low-end. Gibsons Bar & Steakhouse, a three-unit chain in the Chicago area, said that in the last four months, the price it pays for a New York Strip steak rose to $23 per pound from $19 per pound. It's reluctant to pass that cost along. "I think there's a ceiling on how much people are willing to pay for a meal and for an individual piece of steak," said Gregg Horan, Gibsons' director of operations.
Others see more wiggle room. Morton's Restaurant Group Inc., which has seen an uptick in business since last year thanks to an increase in business travel, raised menu prices 2% in July. "We believe we have pricing power...and we believe that our guests are flexible and we have the capacity to do that," Morton's CFO Ron DiNella told investors in September.
Ken Harris, a consumer foods-marketing consultant with Kantar Retail, said some food makers are targeting specific, low price points at retail—such as $1—and reconfiguring package sizes and products to fit the price.
That can backfire when commodity costs rise swiftly. Early this year, Ben Tabatchnick, founder of Tabatchnick Fine Foods Inc., a maker of high-end frozen soups, decided to release a new line designed with a suggested retail price lower than his other products. The 11.5-ounce soups, which started appearing in stores nationwide in October, are smaller than his typical 15-ounce Tabatchnick-brand products and carry a price tag of $1.99.
But in the last two months, Mr. Tabatchnick says his costs for vegetable oils, sugar, dried beans and other ingredients jumped 20% to 30%. "It's going to reduce the [profit] margin dramatically on the product," he says. "We're stuck."
Until spring, that is, when his promotional programs with retailers expire and he says he plans to try to push through price increases.
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