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Gas prices down, should food prices follow?

October 20, 2008 12:00:00 AM PDT
Some consumers are frustrated with the fact that gasoline is getting cheaper, but food prices remain high.When gas prices were on the rise, so did the cost of food and other products. Companies had to pay more for petroleum to make and transport their goods and so they passed the cost on to consumers. However, the cost of products isn't going down because of what the industry calls "sticky prices."

"It's twice as much as it was the last time I shopped," said Diana Combs, a grocery shopper.

Part of the problem is competition. For example, Pepsi worries more about what Coke is doing, and vice versa, than what it costs to make soda. Beer companies work much the same way. When the price goes up, it tends to stay up.

In the case of cereal, Post dropped its prices by 20 percent several years ago and Kellogg had to follow. At that point, however, the profit margins at both companies got slashed; and the bottom line suffered greatly. Now that prices are up again on the popular breakfast food, it looks like they will stick there for a while.

"I don't know how they can justify that because if the gas prices have gone down then surely you know the cost to get our food to us must have gone down as well," said Marion Wagstaff, another grocer shopper.

ConAgra Foods, which makes popcorn, expects its profits to be down despite the higher prices. The company says the cost to make the snack food has gone way up because corn is being used to make ethanol fuel for cars.

"Hopefully it will adjust. You know, the gas hasn't come down for very long ... just the past few weeks? So let's -- let's all hold positive thoughts," said Molly Campbell, a grocery shopper.

One bright spot in the grocery store is packaged chicken. Tyson Foods has been swallowing losses this year in an effort to keep prices down, partly due to the fear consumers would jump to the competition.

Because department stores are expecting one of the most dismal holiday seasons in years, consumers will find some of the best prices. So that is one place you won't find any sticky prices, unless you have to pay for shipping and delivery.


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