From Kiplinger: Business Costs

From The Kiplinger Letter dated September 3, 2010 ...

With economic growth next year only slightly better than this year, businesses can plan on moderate price increases for most products and services, and in some cases, decreases. Moreover, the cost of borrowing money is at rock bottom.

Expect just a modest bump in inflation, given much slack in the economy. Measuring Dec. over Dec., the Consumer Price Index should climb about 1.5% in 2011, vs. just under 1% this year. Wholesale prices will go up about 4%...on par with this year’s pace.

Supplies of commodities are more than ample to meet demand. Corporate profits will wane after posting a strong gain of 29% this year. Figure on an increase of about 8%, partly because firms plan to add more workers.

Health care cost increases for employers…about 8%-9% next year, compared with an average hike of 7% this year. As much as 20% of the rise will be due to the health care law enacted by Congress earlier this year. Most employers are planning to pass on some of the increases to their employees by raising deductibles, out-of-pocket maximums and copayment amounts.

Prescription drug cost hikes will be under 10% for the third straight year… vs. a 20% increase a decade earlier. Greater use of generics makes a big difference.

Base salary increases…2%-2.5%, vs. an average hike of 1.5% in 2010. Top performers will do best as employers offer more cash incentives to stop them from jumping ship. More and more firms will also use stock options to keep key execs on board popular because a vesting period is usually required.

Many firms are restoring pay cuts made during the depths of the recession, though, again, some employers are limiting the restorations to their star performers.

Figure on paying slightly more for energy overall next year as demand rises. Wide price swings seen this year are sure to continue as investors jump in and out of futures markets, though large supplies mean that price spikes will be short-lived.

Oil prices will average around $80 a barrel next year, after falling to $70 or so at the end of 2010. This year’s average: Around $75 a barrel. Gasoline prices in 2011: About $2.85 a gallon…10¢ more than this year... with a summer high of about $3, on average, also 10¢ higher than this year’s peak. Diesel prices are in for a modest increase, too…an average of 15¢ a gallon
over this year, to around $3.10. Summertime prices will peak at about $3.25.