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Sun Jan 31, 2016, 12:15 PM

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

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?

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Reply Why haven't consumer goods taken the same price drop as gasoline? (Original post)
nilesobek Jan 2016 OP
unapatriciated Jan 2016 #1
nilesobek Jan 2016 #8
unapatriciated Jan 2016 #16
hfojvt Jan 2016 #2
hobbit709 Jan 2016 #6
muriel_volestrangler Jan 2016 #3
yeoman6987 Jan 2016 #5
meow2u3 Jan 2016 #19
NutmegYankee Jan 2016 #4
SamKnause Jan 2016 #7
nilesobek Jan 2016 #10
SamKnause Jan 2016 #13
Spider Jerusalem Jan 2016 #9
nilesobek Jan 2016 #14
Spider Jerusalem Jan 2016 #15
WhaTHellsgoingonhere Jan 2016 #11
JCMach1 Jan 2016 #12
Frustratedlady Jan 2016 #17
Zynx Jan 2016 #18

Response to nilesobek (Original post)

Sun Jan 31, 2016, 12:19 PM

1. In regards to groceries...climate change

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

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Response to unapatriciated (Reply #1)

Sun Jan 31, 2016, 12:25 PM

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.

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Response to nilesobek (Reply #8)

Sun Jan 31, 2016, 12:58 PM

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.

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Response to nilesobek (Original post)

Sun Jan 31, 2016, 12:22 PM

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.

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Response to hfojvt (Reply #2)

Sun Jan 31, 2016, 12:25 PM

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

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Response to nilesobek (Original post)

Sun Jan 31, 2016, 12:22 PM

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.

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Response to muriel_volestrangler (Reply #3)

Sun Jan 31, 2016, 12:25 PM

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

 

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Response to yeoman6987 (Reply #5)

Sun Jan 31, 2016, 02:19 PM

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.

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Response to nilesobek (Original post)

Sun Jan 31, 2016, 12:23 PM

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?

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Response to nilesobek (Original post)

Sun Jan 31, 2016, 12:25 PM

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.

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Response to SamKnause (Reply #7)

Sun Jan 31, 2016, 12:29 PM

10. So we are being ripped off

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

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Response to nilesobek (Reply #10)

Sun Jan 31, 2016, 12:41 PM

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

And I stress necessities.



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Response to nilesobek (Original post)

Sun Jan 31, 2016, 12:28 PM

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).

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Response to Spider Jerusalem (Reply #9)

Sun Jan 31, 2016, 12:42 PM

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?

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Response to nilesobek (Reply #14)

Sun Jan 31, 2016, 12:57 PM

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).

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Response to nilesobek (Original post)

Sun Jan 31, 2016, 12:34 PM

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 Iíve alluded to the issue a number of times, Iím not sure if Iíve 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

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Response to nilesobek (Original post)

Sun Jan 31, 2016, 12:37 PM

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

than oil companies on oil.

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Response to nilesobek (Original post)

Sun Jan 31, 2016, 01:22 PM

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.

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Response to nilesobek (Original post)

Sun Jan 31, 2016, 01:24 PM

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.

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