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P&G will boost product prices by up to 16%

Procter & Gamble, which makes Tide, said higher costs, including energy, led to a price increase. Procter & Gamble, which makes Tide, said higher costs, including energy, led to a price increase. (Daniel Barry/Bloomberg News/file)
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Bloomberg News / July 8, 2008

CLEVELAND - Procter & Gamble Co., the maker of Tide laundry detergent and Head & Shoulders shampoo, will raise prices as much as 16 percent because of higher costs for plastic, energy, and paper.

The increases are the Cincinnati-based company's steepest in at least 18 months. Procter & Gamble is betting that customers will continue to buy its Gillette shaving cream and Ivory soap rather than switching to store brands with lower prices promoted by Kroger Co. and Wal-Mart Stores Inc.

"Consumers are conditioned to expect that price increases are here to stay, and they are going to see that across the board," said Peter Sorrentino, who helps oversee assets of $16.7 billion at Huntington Asset Advisors. "They will try the store brands, but if the product performance isn't there, they will switch back." His Cincinnati-based firm owns P&G shares.

Retailers will pay P&G 2 to 16 percent more for fabric, home and hair care, bar soaps, and health and shaving products beginning in September, P&G spokesman Paul Fox said yesterday. Commodity expenses will climb more than $2 billion this year, he said.

P&G previously added 4 to 8 percent to prices in the past 18 months, Fox said.

The company tries to counter as much as a third of rising expenses for pulp, used in paper, tallow, an animal fat used in soap, and oil-based products such as plastics through the reduction of distribution costs, Fox said.

"We don't price in anticipation," Fox said. "We only price to recover costs."

US consumers have slowed spending as costs for milk and bread increase and gasoline remains above $4 a gallon. The US economy lost jobs for the sixth straight month in June, the Labor Department said last week, raising the risk that people will cut back further.

P&G fell 76 cents, or 1.2 percent, to $62.91 in New York Stock Exchange trading. The shares have dropped 14 percent this year.

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