The price of oil has dropped. Why is your grocery bill so high?The economic recession we're facing has caused oil prices to drop dramatically. However, basic necessities such as cereal, or even a tube of toothpaste are priced at an all time high.
What's to blame? So called "sticky prices." "Sticky prices" is the term used by analysts to describe companies that keep prices high, even after the rationale for the high price has vanished.
The extra fee you are charged to check a bag at the airport? A perfect example of "sticky prices."
Newsweek reports that the falling cost of oil helps companies to cushion their profit margins. Companies will be paying less on production and transportation costs. However, this doesn't mean a thing to the consumer, as consumer prices will stay high.
It just takes longer for consumer prices to change. Chris Lafakis, an economist with Moody's Economy.com says, "Consumer prices don't change near as fast, because they are set by companies. Commodity prices are set every day on an open market."
Companies are focusing on what their competitors are charging. Lars Perner, assistant professor of marketing at the University of Southern California's Marshall School of Business states, "As soon as the first (company) in a category reduces prices, the others will follow suit. But they're all hoping the other one doesn't" cut prices.
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