Inflation has come for Dollar Tree, which for decades lured American shoppers with promises of items costing just a buck, but which said Tuesday it must now raise those prices to $1.25.

"The company believes this is the appropriate time to shift away from the constraints of the $1.00 price point in order to continue offering extreme value to customers," the company said in an earnings announcement.

"This decision is permanent and is not a reaction to short-term or transitory market conditions."

The company plans to complete the 25 percent price hike by next April, amid a wave of inflation that saw US consumer prices jump last month by their highest level in more than three decades.

What once cost $1 at Dollar Tree will now cost $1.25
What once cost $1 at Dollar Tree will now cost $1.25 GETTY IMAGES NORTH AMERICA via AFP / SCOTT OLSON

Dollar Tree said the increase would help it deal with "historically-high" costs increase in freight and employee salaries, among other expenses.

Analyst Neil Saunders, managing director of GlobalData, called the change "inevitable" if the company wants to address the 34 percent drop in its profits from August to October.

"The change does come with a risk attached -- especially since the price hike is way above the prevailing rate of inflation," he said.

"Ultimately, Dollar Tree is caught between the raging sea of inflation and the rock of maintaining value perceptions."


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