Is the grocery price war over?

Brought to its knees by a fierce discount battle, the grocery industry is starting to raise prices.

By Kim Peterson Oct 6, 2010 2:25PM
Shopping for deals © CorbisGrocery stores have been fighting a tough war on prices, desperate to lure discount-hungry customers. But now it looks like that battle may be ending.

The price war was great for shoppers, many of whom cut their spending dramatically as the recession lingered. But was it good for grocery stores and food producers? Not so much.

Sales and promotions were everywhere, and as a result no company came out a winner, Reuters reported. In fact, the discounts were so deep that even the bump in sales couldn't restore the bottom line.

The average prices for consumer goods dropped 0.6% in the 12-month period ending in August, Reuters reported.

So what is causing a price truce? Rising commodity costs. The prices of commodities across the board are going up, from grains to cocoa to coffee and milk. Faced with those new pressures, some grocery stores and food producers are pulling in the discounts. Post continues after video:
Now, Reuters reports, executives are hoping for a round of price increases to build back profits and get the industry growing again.

At Wal-Mart (WMT), analysts found that a 31-item basket of goods cost $95.75 in September, up 5% from the start of the year, Reuters reported. The company appears to have abandoned its recent price-rollback strategy.

The companies that could see the greatest inflation, analysts tell Reuters, include Kraft Foods (KFT), General Mills (GIS) and HJ Heinz (HNZ).

Some companies, however, are wary of pushing prices up too quickly. "You can't indiscriminately increase pricing in this environment, now or in 2011," the chief executive of Coca-Cola(KO) told Reuters. He said the U.S. consumer is "still somewhat confused."

If prices go up, the possibility of the economy heading into a damaging deflationary period becomes more remote. But will consumers readily open their wallets to new prices?
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