Higher gas prices affect prices of other consumer goods

Fueling higher prices

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Prepare to dig deeper into your wallet.

The costs of consumer goods are paralleling the rising gas prices. With gas prices nationwide heading toward the $4 a gallon mark, analysts expect the pocketbook pain to get worse.

“Fuel prices hit retail food prices in two ways, in processing and transportation,” said Ricky Volpe, a research economist with the USDA Economic Research Ser­vice. “It’s really all along the whole food supply chain, but some commodities certainly get hit harder than others.”

The Consumer Price Index shows the correlation of rising gas prices to consumer goods. Food prices increased by 4.4 percent from January 2011 to January 2012, and apparel prices by 4.7 percent. In that same period, gas prices rose by 9.7 percent, reaching a high of $3.98 per gallon May 5. The average was $3.76 as of Wednesday.

The recent string of gas price increases – 39 consecutive days – was the longest since prices increased for 44 days beginning March 24 of last year.

“I definitely think that we’re going to see $4 a gallon this year,” said AAA spokeswoman Jessica Brady. “I think it would probably be some time in April that we’ll see that happen.”

Augusta might not experience $4 gas as early as some other metro markets, but the prices could reach that mark by late April or early May, she said. Regular gas in the Augusta-Aiken area was averaging $3.63 per gallon as of Thursday.

The lone bright spot for consumers is that food inflation is unlikely to approach 2007-08 levels, according to the USDA Economic Re­search Service. Food prices rose by 4 percent in 2007 and 5.5 percent in 2008. During that period, gas prices reached an all-time high at $4.14 a gallon in July 2008.

For this year, the USDA research service predicts an annual change of 2.5 percent to 3.5 percent.

The price of gas is built into the price of almost everything consumers purchase, said Dr. Jeff M. Humphreys, the director of the Selig Center for Economic Growth at the University of Georgia. He said high gas prices tend to hit Georgia harder than the nation as a whole because of several factors.

In addition to not having any fuel production or refineries, Georgia has a large distribution industry, a gas-intensive type of economic activity. The state’s distribution industry, including trucking firms, shipping companies and logistics centers, is larger than expected for the size of the economy, Humphreys said.

Higher gas prices also affect large products that need to be moved long distances. Both the buyer and seller are affected, said Bill Hauk, the assistant professor of economics at the University of South Carolina’s Moore School of Business.

Businesses that operate on a small profit margin, such as grocery stores, are impacted by anything that affects costs. Delivery companies and taxi companies are also hit because they rely heavily on transportation, Hauk said.

“Until a certain point, these businesses eat up their margins,” said Emin Hajiyev, the assistant director of the Economic Forecasting Center at Georgia State University. “But at some point when the price of oil or gasoline becomes exuberantly high, they will have to pass on those costs to consumers.”

There are several factors contributing to the increase in gas prices, Brady said. The primary cause is escalating tension with Iran. The nation has threatened to block the Strait of Hormuz, which transports one-fifth of the world’s oil supply.

This is also the time of year when refineries shut down to switch from winter to summer blend fuel and consumers “see prices increase into the summer travel season,” she said.

Positive economic news in the U.S. or Europe tends to push oil prices higher. It causes speculation that de­mand will increase, she said.
“At the same time, you have these increased gas prices eating into consumers’ disposable income,” she said.

That will force most peo­ple to make sacrifices in their discretionary spending, Hajiyev said.

When gas hits $4 a gallon, Augusta resident Jennifer Flores said she’s going to have cut back on visits to her mother’s house in Lincolnton, grocery spending and recreational activities.

“I smoke cigarettes. They’re going to jack those up, so quitting will be an option,” she said. “No going out to eat or fun stuff because you’ve got to pay $10 just to get across town. That’s crazy.”


Percentage changes in Consumer Price Index for all urban consumers:

ItemJULY 2011AUG. 2011SEPT. 2011OCT. 2011NOV. 2011DEC. 2011JAN. 2012UNADJUSTED 12 MONTHS*

Source: Consumer Price Index, U.S. Bureau of Labor Statistics

* Unadjusted 12-months ending in January 2012

**Gasoline, all types

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copperhead 03/11/12 - 07:19 am
hussein says oil is the

hussein says oil is the energy of the past! How can energy of the past affect the price of anything? He is running a scam on us all.

Bob Munger
Bob Munger 03/11/12 - 10:14 am
The writer attributes rising

The writer attributes rising oil prices to tensions over Iran, failing to note that, after falling 1.5 percent between 2008 and 2009 due to the global financial crisis, global oil consumption recovered by 3.1 percent in 2010 to reach an all-time high of 87.4 million barrels per day. Although figures are not yet in, global consumption has continued to rise, with China now consuming over 10% of the world's oil. It's economy continues to grow rapidly, with rising incomes leading to millions of new car owners. Meanwhile, as oil is priced in US dollars, and the dollar has been debased by the Fed's quantitative easing, better be prepared for continued price hikes.

Few people realize that North American oil production is expected to hit an all-time high by 2016, given the current pace of drilling in the U.S. and Canada. U.S. oil production will rise a little over 2 million barrels per day from 2010 to 2016, according to data compiled by Bentek Energy, a Colorado firm that tracks energy infrastructure and production projects. Canadian crude production is expected to grow by 971,000 barrels per day during the same period. Combined, the U.S. and Canadian oil output will top 11.5 million barrels per day, which is even more than their combined peak in 1972. The reason is simple: oil drilling companies expect prices to stay high and go higher, Iran tension notwithstanding.

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