Seen On

Good Question: Cheaper Gas, So Why Not Other Stuff?

(WCCO) Gasoline prices are $1 a gallon cheaper than they were a month ago in the Twin Cities. While fuel prices were on the way up, all sorts of other companies raised prices blaming the fuel prices. So why aren't those prices falling?

"When they blame it on the gas, when the gas goes down they should lower the prices based on that," said Bruce Wenner, a Blaine resident. He and his wife Kathy said a typical grocery trip used to cost $200. Now it's more like $250.

"Over the past year there's been nothing but price increases," said Kathy Wenner. "When are we gonna see decreases in grocery and other goods?"

The chair of Augsburg College's economics department suggested that it's going to be a while.

"They're not going to go down if demand doesn't go down," said Jeanne Boeh. "Prices are considered 'sticky upwards.' So when the prices go down, companies try to recoup their cash and build a cushion."

"It just means it's easier to raise prices sometimes than to lower prices," she added.

According to Boeh, gasoline prices started going up before most companies started raising their prices. So they felt a pinch in the early months, and may be trying to recoup some of that now.

"If you lower your prices quickly and then the fuel prices go back up then people are really going to notice that shift back up. It's a more conservative approach just to leave it where they are, build up a cushion and then the law of demand will eventually take over," Boeh said.

Also, blaming fuel prices for the price hikes may have been an oversimplification. According to Boeh, price pressures were already there before gasoline prices started rising. Health care and commodities costs were both skyrocketing.

"The rising fuel covers a multitude of costs but everybody understands that one," she said.

But there's also some blame on the consumer side, said Baeh.

"There's a little bit of a psychology too because when gas prices went from three to four dollars we just felt horrible. But now that the prices have gone down people are not dancing in the street, they're not overly happy, they're not saying 'Great, look how cheap my gas is.' So we feel price increases more than we feel the price decreases," she said.

(© MMVIII, CBS Broadcasting Inc. All Rights Reserved.)

---