Shoppers will brave higher holiday prices

Christmas in July? Maybe not a bad idea this year.

Retailers are already talking about price increases of up to 15 percent on holiday goods, from staples such as tree ornaments and toys to luxury gifts like European handbags and clothing.

The main cause? It's the same old chestnut: soaring energy prices.

While most consumers are just starting to think about back-to-school shopping, retailers are already preparing for the critical holiday season.

Consumers have seen prices creep up for many products; but now, escalating cost pressures – which are also being fueled by the weaker dollar and higher labor costs in China – are forcing merchants from low-price warehouse clubs to upscale clothiers to pass on more of the burden in the months ahead.

Many stores are still deciding on holiday prices, and receding oil prices in recent weeks could provide a bit of relief. Still, buying that status handbag now might help shoppers save a little – but for some items, it's already too late.

And any big surge in demand could lead to more bad news on the inflation front, serving as a catalyst for prices to spiral.

With bigger price increases, the nation's merchants risk turning off shoppers who may end up buying fewer holiday gifts to keep to their budgets. That could mean a serious hit for the economy, since consumer spending accounts for two-thirds of all economic activity and the holiday period accounts for a huge chunk of merchants' sales and profits.

“Truthfully, I probably won't purchase items that go up that much – especially something like Christmas decorations,” said Marilyn Reese of Cincinnati, who works at an insurance company.

“I will just go with what I have.”

Carl Steidtmann, chief economist at Deloitte Research, says that price inflation will be yet “another factor that undermines consumer purchasing power and will hurt spending even more.”

“This will be a very difficult holiday season,” he said.

The price increases come as stores also must push even deeper discounts this holiday season to attract customers. But 50 percent off may not be as good a deal as last year since the original price could be higher.

Even Costco, which had been one of the bright spots in retailing, warned last week that its profit was getting squeezed by rising energy costs, and it would have to raise prices more. Richard Galanti, Costco's chief financial officer, specifically cited holiday decor and rotisserie chickens, which are popular for holiday meals.

Holiday decor will be as much as 12 percent pricier this holiday season than a year ago, and the price of rotisserie chicken, which had been $4.99 for years, was raised to $5.49 about three months ago and just went up to $5.99 last week.

Toy prices are likely to be about 10 percent higher for the holidays than a year ago, said Sean McGowan, an analyst at Needham and Co.

K-B Toys Inc., which focuses on selling past toy hits at discounted prices, says it isn't increasing prices for now.