Oil Prices May Go Down, But Don't Expect Your Grocery Bill To Shrink

Now that the price of oil has dropped — you should expect some of those skyrocketing grocery bills you’ve been paying to drop, right? Yeah… probably not.

It’s called “sticky prices” — the tendency for companies to delay both raising — and then lowering prices in response to changes in the cost of raw materials. You see, what you pay at the grocery store has more to do with what competitors charge than it does with how much it actually costs to produce the item.

The AP explains:

Prices have been going up broadly across whole categories of products, meaning competitors have been hiking prices in unison. For example, both Anheuser-Busch Cos. Inc. and SABMiller’s U.S. unit have been raising the price for beer, with neither one too worried that the price hikes will push customers to their competitor.

“They may be upset about it, but you really have fairly limited options as a consumer,” Perner said.

For prices to drop, consumers have to hope that companies’ competitive juices start flowing again. The drop in oil and ingredient prices is creating a high-stakes game of chicken in the shopping aisle, Perner said.

If companies keep their prices at current levels, they can reap higher profit margins. But if one company starts cutting prices to lure customers away from competitors, it could start a price war.

“As soon as the first (company) in a category reduces prices, the others will follow suit. But they’re all hoping the other one doesn’t” cut prices, Perner said.

…And in case you’re wondering if the same applies to airfares… the answer is yes. Don’t expect the airlines to let go of any of those new fees without a fight.

Grocery bill still high? Blame ‘sticky’ prices [Newsweek]
(Photo: Ben Popken )