Caterpillar plans smallest price increase since 2006

Caterpillar Inc., the world's largest maker of construction equipment, plans to raise prices on most machines worldwide by as much as 2 percent in its smallest increase since at least 2006.

The new prices, from zero to 2 percent, take effect in January, the Peoria-based company said today in a regulatory filing. Caterpillar cited "current industry factors and current and expected general economic conditions."

Chief Executive Officer Jim Owens' planned increase is lower than the past three years, when prices climbed as much as 7 percent, according to Caterpillar. The U.S. is in a recession and faces the possibility of deflation, or a decline in prices, for the first time since the 1950s-era Eisenhower administration.

The threat of deflation may push the Federal Reserve to keep interest rates near zero through next year. Executives at Kroger Co., the largest U.S. supermarket chain, blamed deflation for a 7 percent drop in second-quarter earnings, while falling prices for food, gasoline, and electronics left August sales unchanged at Costco Wholesale Corp.

Caterpillar planned for increases of as much as 5 percent in 2006 and as much as 5 percent for machines and 7 percent for engines in 2007, according figures supplied by the company. The 2008 plan for price boosts of as much as 5 percent for machines and 6 percent for engines was augmented by another midyear increase. The planned 2009 increase was as much as 7 percent.

The 2010 price changes will be released to dealers in the "near future and will vary across geographic regions and products," Caterpillar said in the filing.

Robert Wertheimer, a New York-based analyst with Morgan Stanley, earlier today boosted his 2010 machinery sales estimate for the company to an increase of 2 percent compared with his previous prediction of 4 percent reduction. Wertheimer cited a "slightly stronger economy" and raised his price target by $10 to $44.

Caterpillar climbed $1.92, or 3.9 percent, to $50.75 at 4 p.m. in New York Stock Exchange composite trading. The stock has gained 14 percent this year.