Waiting for some relief

Tom and Leanne Bond are waiting to see how long it will take for their weekly grocery bill to go down now that gasoline prices are dropping.

Food prices exploded earlier this year because transportation and production costs -- pushed by fuel prices -- more than doubled.

During the summer, gasoline cost more than $4 a gallon. Now it's headed toward $1.

The Bonds and other families say they are experiencing relief at the gas pump but no similar relief at the grocer.

Food prices continue to rise, despite drops in the costs of production, packaging and transportation. According to the October Consumer Price Index, released Nov. 19, food prices in October were 6.3 percent higher than a year ago.

Tom Bond, an antique dealer in Hallowell, said it costs 20 percent more than it did a year ago to feed his family.

"It's funny that the price doesn't go down when a lot of the cost increase is the shipping of a product," Bond said. "Of course, it supposedly will take a longer time for any reductions to take effect; but I don't think you'll see groceries drop in price at all. They've been heading up consistently for years and are now continuing, even with oil prices going down."

Bond said he believes the oil companies control the U.S. economy. Oil companies reduced their prices, he said, only because of the fear of recession. As soon as the economy recovers, he said, fuel prices will go right back up again.

That's also what food suppliers are afraid of.

Michael Norton, spokesperson for Hannaford Bros., said food suppliers continue to worry about the fluctuation of oil prices.

Price breaks "won't happen until suppliers upstream from us get comfortable with economic conditions, which have been pretty erratic," Norton said. "They have to see that it's going to hold for a while."

Norton said companies that supply food to grocery stores were late in raising their prices in the face of increases in fuel and ingredients used to produce food.

They hesitated to increase prices because he said they were afraid it might push shoppers into the arms of a competitor, or to cheaper alternatives.

According to an Associated Press report, meat companies such as Tyson Foods Inc., for example, swallowed losses this year as ingredient costs rose because executives were worried their customers would abandon their products if the prices jumped too fast.

Norton said food suppliers will continue to feel competitive pressure, which will be good for grocers.

Grocers have been able to reduce the price on some items, he said.

"This past Thanksgiving, we were able to sell turkeys for 47 cents a pound, which is less than last year," he said. "I know from a consumer perspective, the prices are high and they can't go down fast enough. That said, we are pretty fierce about trying to get even more prices down. And we're doing our best to have good prices across the store that stay, not bounce up and down as much."

When prices get stuck near their peak -- even though the rationale behind price increases, such as the drop in the price of oil, is gone -- analysts call that "sticky" prices.

Chris Lafakis, an economist with Moody's at Economy.com, said the price of consumer goods typically lags behind the price of key factors such as oil, corn and wheat.

"Consumer prices don't change near as fast, because they are set by companies," Lafakis said. "Commodity prices are set every day on an open market."

Daren Hachey -- who serves on the Maine Grocers Association Board of Directors and owns Mister Market in Winthrop, a medium-sized grocery store -- said some grocers in Maine have not passed along all their cost increases to their customers.

As a result, their margins are shrinking.

"Our margins shrunk this last year due to the astronomical speed that oil and corn rose," Hachey said. "Corn affects a lot of things. It's feed for animals, like beef, and it's in so many products. You can't pick up a product off the shelf that doesn't have corn, either starch or syrup, in it. If my margins are getting compressed, other stores are getting compressed."

He said no one trusts oil prices to stay down for very long.

If they do, he said, it still will take some time for a turnaround in food prices.

"No one wants prices to be high or out of line," he said. "We want to pass along cuts in prices to our customers."

Mechele Cooper -- 623-3811,

ext. 408


Source: morningsentinel.mainetoday.com