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Shoppers wait for break, even after gas price decline

Gas prices in the Tampa Bay area are down a stunning 60 percent over the past five months.

So where's the trickle down?

As gas prices peaked in the summer, the nearly $150 tab for a barrel of oil was the prime suspect in everything from spiking airfares and surging food costs to announcements of much higher electric bills in 2009.

As oil prices have receded, however, the impact has been decidedly muted. Airfares have ticked down only slightly, and most local electric bills will still climb steeply in January.

The most glaring disconnect may be at the supermarket. Prices for staples like eggs and milk are down by just single digits even though markets for commodities such as wheat, soybeans and corn have fallen as much as 40 percent.

Grocery stores — and their customers — have noticed.

"We've been taking a look at that question because we are getting it," said Bill Greer, a spokesman for the Food Marketing Institute, a trade group representing manufacturers. "Retailers are acutely sensitive to consumers' concern about the costs of food and are trying very aggressively to help them lower their spending."

Economists point to several reasons for any lag: Some companies have long-term shipping or fuel contracts, so price cuts aren't showing up yet. Many consumer prices, such as airline tickets, never rose enough to reflect the sharp jump in fuel prices. And there's an inherent reluctance to cut prices in case they don't stick, especially given the weakening U.S. dollar and OPEC's decision Wednesday to slash production, which often results in an uptick in oil prices.

Ephraim Leibtag, an economist with the U.S. Department of Agriculture in Washington, isn't surprised by pricing inertia, especially in an environment when many are struggling to make money.

"As long as your competitor down the street is not slashing prices, you don't have to either," Leibtag said. "They may have taken a loss on the short term on the way up, so there's going to be a lag on the way down."

In other words, the recession isn't helping the price-conscious consumer.

"I think if the economy were good, you might see more of a measurable affect from lower fuel prices," said Joan Rogers of Quality Distribution, a Tampa trucking company hit hard by the higher diesel prices.

Scott Brown, an economist with Raymond James in St. Petersburg, urged patience. "Transportation costs, farm prices, those don't turn on a dime," he said.

Here's a closer look at what's happening:

Supermarket prices

Start with the chicken … or the egg.

Higher distribution costs and higher costs for chicken feed (since more corn crops were being diverted to ethanol) were often cited for the dramatic rise in the cost of eggs the past couple of years.

In metro regions in the South, such as the Tampa Bay area, the price of eggs rose 25 percent at the end of 2006, then 53 percent more in 2007. Yet, as of November, year-to-year prices were down just 2 percent.

Likewise, the price of milk is falling, but not enough to offset its huge runup. From December 2006 to December 2007, milk prices rose 27 percent in Southern metro areas. Year to date, prices are down 7.4 percent.

Some food prices, like bread, have actually gone up the past couple of months. As of November, bread prices were up 19 percent from a year ago.

"Transportation costs are down, especially in the Deep South, (like) Florida and Mississippi … so (some prices) should be reversing because of that," said Steve Rondone, an economist in the U.S. Bureau of Labor Statistics' Atlanta division. "But there's no magic lag time."

Nicole LeBeau, spokeswoman for Sweetbay Supermarkets, said her chain can't control prices set by other manufacturers. But its policy of setting prices to hold steady for 13 to 15 weeks has helped curtail what could have been a much sharper jump in food costs as fuel was spiking in the summer.

"When the cost of fuel was almost $4, we didn't pass that on to the customers," she said. "If Brand X is raising their prices, they're going to raise their prices. There's little I can do with that."

Greer of the Food Marketing Institute also said food inflation data can be misleading because it doesn't reflect heavy promotional deals, particularly with store brands. Between the promotions and economic necessity, he said, consumers have increasingly turned to buying less expensive store brands and buying less food altogether.

Little drop in airfares

The good news for travelers is that airfares never rose anywhere near as sharply as fuel prices. The bad news is that lower fuel prices now won't necessarily lead to cheaper flights.

David Castelveter, spokesman for the industry trade group Air Transport Association of America, said it's hard to make a case for lowering prices when the airline industry is on track to lose $4-billion this year.

The struggling industry has cut capacity by 10 percent and laid off 36,000 employees in an effort to restore profitability. Ten airlines couldn't make it and closed their doors this year, and three more sought bankruptcy protection.

Castelveter pointed out that airline fare increases remain below inflation, even including a la carte pricing for premium seating and checked bags. Jet fuel costs, for instance, have risen 357 percent since 2002.

Fuel prices started rising in late 2007 and continued their ascent until topping out in July before starting to fall. It wasn't until October, however, that fuel prices actually fell below 2007 levels.

The financial crisis has only made matters worse for the airline industry. Consumers aren't flying as much and businesses are scaling back travel budgets. The industry is looking at further cutbacks next year.

Utilities' 1-year delay

Talk about bad timing.

Bills for Progress Energy and Tampa Electric will go up in January largely because we're paying for the past.

Utilities aren't allowed to profit from fuel. It's a pass-through to customers. For most of 2008, Progress Energy and Tampa Electric were charging customers too little. As fuel prices soared, the utilities paid for the fuel out of their own pockets. In 2009, customers have to pay that money back. The utilities are also predicting higher prices for coal and natural gas, further contributing to the 2009 increase.

If the prices of natural gas and coal fall in 2009, utilities could end up in the opposite position: Customers will have paid too much for fuel. If that happens, the utilities have to pay the money back through lower fuel charges in 2010.

Jeff Harrington can be reached at (727) 893-8242 or harrington@sptimes.com.

Shoppers wait for break, even after gas price decline 12/20/08 [Last modified: Friday, December 26, 2008 6:03pm]

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