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Cigarette Makers Raise Prices

Philip Morris raised the wholesale price on all its major cigarette brands by 18 cents a pack over the weekend, the second largest cigarette price increase in history. RJ Reynolds, Brown & Williamson and Lorillard Tobacco Co. immediately matched the increase, which goes into effect today.

The increase will help the companies offset a 10-cent-per-pack federal excise tax starting in January and a four-cent-per-pack increase in legal settlement payments next year. The price increase could reduce sales of Philip Morris's cigarettes by six percent in the US, according to Bonnie Zoller, an analyst for Credit Suisse First Boston.

The retail price of a pack of cigarettes will go up about 22 cents, and will average $2.65 in 2000, nearly $1 more than in 1997, estimates tobacco analyst David Adelman of Morgan Stanley Dean Witter. But analysts believe that promotional discounts offered by the companies will soften the blow to consumers.

"Consumers will only gradually feel the price increase," predicted Martin Feldman, an analyst at Solomon Smith Barney. On news of the increase, Philip Morris shares rose 18.75 cents to $37.75; RJ Reynolds shares fell 12.5 cents to $28; Loews shares fell 87.5 cents to $78.62; and BAT shares remained unchanged.

Bloomberg News, (8/30/99) "Philip Morris, Rivals Raise U.S. Cigarette Prices (Update4)"
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AP, (8/30/99) "Cigarette Packs to Jump 22 Cents", Justin Pope Associated Press Writer
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WALL STREET JOURNAL, (8/31/99) "Major Makers Of Cigarettes Raise Prices", Gordon Fairclough, p. A3

NEW YORK TIMES, (8/31/99) "Cigarette Makers Lift Wholesale Prices 8 Percent", p. C5