Falling oil prices? Food won't necessarily follow

[amyrose2712]

(AP) -- Worries about a global recession have pushed the price of oil to its lowest in over a year. Don't expect the same for a bottle of beer, a tube of toothpaste, or a box of cereal.
Companies are paying less to transport goods, but that doesn't mean prices will drop at stores.

Companies are paying less to transport goods, but that doesn't mean prices will drop at stores.

You can blame "sticky" prices.

That's what analysts call it when companies slap higher prices on products and keep them there even though the rationale for the price hikes -- such as soaring oil prices -- is gone.

The falling cost of oil could help companies pad their profit margins as they pay less to make and transport goods. But it won't mean a break on the average grocery bill.

~snip~

But once a price hike is in place, it virtually never goes away, Lafakis said. The one factor that can drive prices down is a drastic drop in demand, but few economists expect the global economic downturn to be so severe it would cause widespread deflation, he said. More likely is that inflation will slow or possibly flatten.

http://www.cnn.com/2008/US/10/19/sticky.prices.ap/index.html

[Orrex]

1. You know, as galling as this is...

What bothers me more is that the next time oil prices go up, these companies will raise their prices again, and they'll start from these current, already-raised prices.

Wonderful thing, the free market.

[UnrepentantUnitarian]

2. Gas prices also have a certain "stickiness"

When crude oil was $147, gas at the pump was $4.00, but when it's $69 to 73, do we see it the price at the pump cut in half? That would be less than $2.00. Instead we see $3.00.

While ranting, I've also noticed that gas prices at the pump jump almost overnight when futures make an abrupt change...but, wait a minute..that gas at the gas station has already been bought and paid for, hasn't it? Why should there be any change on the price of it?

[RB TexLa]

3. replacement cost. If you filled your car up with gas that cost $1.00 and tomorrow it jumps to $7.00

a gallon are you going to conserve the gas in your car more? Why would you it's already been bought and paid for hasn't it?

[KharmaTrain]

4. The "You Never Know" Philosophy

The markets are so fluid right now, it's hard to stick with a fixed price on anything these days...especially oil. The tightened credit market also is making it imperative for many companies to keep more and more liquid assets at hand. I'm certain many companies are hedging on all these fluctuations by keeping prices high and trying to build up a surplus because "You Never Know".

When oil prices spike, it ripples through the economy. Many of the produce that are on the shelves now were planted months ago when prices were higher and now those costs are being passed along. Unless we see prices stay stable for at least 6 months, I don't expect surcharges on travel to go away...the best to hope for is that travel demand goes down so much that airlines get in a price war to attract whatever business is out there.