Sunday, October 19, 2008

What goes up doesn't always go down.

I just finished reading this article on the high prices of grocery bills, and why they're going to stay high. More than the cost of gas, I've found the rising cost of food and other household necessities to be quite frustrating. We're spending around 75% more this year for the same groceries we bought last year. That's a heck of a lot more than a reasonable 3% inflation. My husband and I are in the lucky position to be able to afford the increase... but it's not like I want to spend my money that way. It cuts into the money I have for video games!

So back to the article, prices of consumer goods rose in the response to the price of fuel and commodities. However, even though fuel prices are falling, consumer prices are expected to stay the same. Basically if we're used to paying $5 for a bag of potato chips, then the manufacturer sees no reason to drop the price. If the price of potatoes and that of oil (the two main ingredients in potato chips) gets cheaper, then the manufacturer will just make a larger profit. Two things would make the potato chip company lower its prices. One is if the demand goes down. If people quit buying the potato chips at $5 a bag, then they are likely to lower the price and see if it helps. The other is if competing companies lower their prices. If every other bag of potato chips is $4, then the company will probably lose sales to the cheaper chips. The way to regain those sales is to price their chips competitively.

All of this is bad news for us potato chip lovers. That means we are going to keep paying high prices for the food we buy. Along the same lines, I would be surprised if shipping and travel costs (which also rose over the past year) go down either. Instead as consumers we will become used to the new pricing levels.

I think what I find the most distressing about this situation is that everyone keeps clamoring about gas prices, and I've read very few articles about the repercussions on the rest of our purchases. If it were just gas costing more, it would certainly be unfortunate but much less of an impact than the real situation. And to some extent, they have us over a barrel. There are a dozen things I could to do reduce my grocery bill... buy generics, shop sales, etc. However that doesn't change the fact that the over all prices are more expensive.

At this point I have not significantly changed my shopping habits. I'm at the point of debating them though... I've got my video game budget to think about! :-)

1 Comment:

learan said...

Eating is an expensive habit and I'm trying to kick it, but man it's hard. ;)

We have had to increase our food budget and alter our shopping list a bit to compensate for higher grocery prices, but there's not much that can be done other than that. The companies do, as you said, have us over a barrel.