Why haven't consumer goods taken the same price drop as gasoline?

[nilesobek]

Hard not to notice that prices of groceries and retail goods continue to climb even though crude oil has virtually bottomed out.

Should we blame corporations and their retail outlets? Can an economist explain this?

[unapatriciated]

1. In regards to groceries...climate change

extreme weather has had a detrimental on crops thus affecting cost.

[nilesobek]

8. I was always told by retailers

that it all related to shipping costs and as soon as the price of gas went down, so would the cost of consumer goods.

Good point. I didn't take that into account. I wonder if statistics support that.

[unapatriciated]

16. We are starting to see a shortage in produce

due to several factors. The biggest one is the weather in California and Mexico (drought than heavy rains with flooding) where most of our produce comes from.

On the upside there was a bumper coffee crop, so we could expect lower prices there.

[hfojvt]

2. actually milk, at least, seems to be about $1 a gallon less than last year

that's the only one I notice to remember the price. I don't buy a whole lot of retail goods.

[hobbit709]

6. Not around here. Pretty much the same price.

[muriel_volestrangler]

3. Gasoline forms a fairly small part of the cost of most goods

So the large variations in that commodity (which come from large fluctuations in supply, demand, and speculation) don't cause variations on the same scale.

[yeoman6987]

5. You are right but when gas is high they use the excuse to raise groceries

[meow2u3]

19. Most grocery stores don't bring down their prices when gas is cheaper

So there goes the rationale for jacking up food prices when gas prices increase.

[NutmegYankee]

4. Basic Capitalism - prices based on seller willing to sell at and market willing to bear it.

Nobody has stopped buying consumer goods, so why would they lower prices?

[SamKnause]

7. Once the price goes up it rarely comes down.

Any products that are transported using gas as there fuel source should have dropped.

Any products that use oil for manufacturing needs should have dropped.

That list includes almost everything being trucked and made in the U.S.

[nilesobek]

10. So we are being ripped off

or I am dumb enough to pay the price...or necessity forces me to buy.

[SamKnause]

13. Yes we are being ripped off and forced to buy overpriced necessities.

And I stress necessities.

[Spider Jerusalem]

9. Lower oil prices, at present levels of production cost, are not economically beneficial

With oil below $30 a barrel, the majority of US and Canadian oil production (which comes from tar sands and oil shale) is not economical to produce, but the investment in production infrastructure is also a sunk cost, so there's no reason to not keep producing it (even though the break-even is somewhere in the range of $65-75 a barrel). So at current oil prices, US-produced shale oil is losing $35-45 a barrel, which is a loss of $2 billion a day to the US economy. And that doesn't take into account the thousands of job losses in Texas and North Dakota and elsewhere due to the collapse of the oil price, nor the large amounts of debt taken on by oil drillers that's not being serviced because they're not making enough money to do it.

Further, the economy is global; China is experiencing something of an economic crisis, with productivity and growth down very considerably (the Baltic Dry Index of shipping, which is a useful measure of international trade, has recently been at all-time lows).

And the cost of consumer goods hasn't fallen because the inflation rate is still (barely) positive, at 0.7%; a fall in the price of consumer goods would be the result of deflationary pressure (which may arrive, but hasn't, yet).

[nilesobek]

14. Wow. Two billion a day losses.

Here I thought the downward pressure on oil prices and our huge investment in shale was to persuade foreign governments but its harming us too.

You seem very well versed in economic matters. Do you think, overall, that our shale strategy has a positive outcome? Did the producers not anticipate this drop, or were they driving toward it?

[Spider Jerusalem]

15. It probably wasn't anticipated

the "glut" represents, actually, an inventory excess of only about 3% above normal levels and is largely the result of a couple of factors: the economic slowdown in China depressing demand, increased production from Iraq leading to excess supply. (Saudi and other OPEC countries haven't actually INCREASED their production, they've just held steady; but new production increases from Iraq and now Iran with the end of sanctions change the picture for everyone.) And like I said, the upfront investment in shale is a sunk cost, so shale producers have incentive to keep producing wells until they run dry (since they still need to service their debt, even if they're no longer making a profit).

[WhaTHellsgoingonhere]

11. That's deflation. You don't want that

A number of readers have asked me to explain why deflation is a bad thing; and the truth is that while I’ve alluded to the issue a number of times, I’m not sure if I’ve ever laid out the whole case. So here goes.

...the argument that deflation is a bad thing is also an argument saying that some economic problems get worse as inflation falls, and that too low an inflation rate may actually be economically damaging.


http://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation-bad/?_r=0

[JCMach1]

12. Amazon, Walmart, Target et al have an even bigger monopoly on consumer goods

than oil companies on oil.

[Frustratedlady]

17. Our local HyVee grocery raised prices substantially after the first of the year.

For instance, green top carrots went from $.98/bunch to $1.49/bunch. Danish rose to $.99 ea, individual chocolate milk went from $.98 to $1.39/bottle. Many others rose, but you get the idea. I figured they must have given out raises at the end of the year and these raises were to support that. However, I doubt it. Has to be for the corporation. By now, the prices should be way lower since gas prices have been down for a long time.

[Zynx]

18. Because gasoline is only a small input for other prices.

Also, I really don't see much inflation with other goods. I've been buying pretty much the same exact basket of goods from my grocery store for about 8 years and maybe it costs $1 more total than it did back then.