Oil Prices Are Up; How Businesses Will Make You Pay

Oil prices are rising to around $50 a barrel which directly or indirectly makes everything more expensive. The problem is, wages aren't rising to match inflation. Businesses can't raise prices to cover increasing costs without losing sales, or rather, without losing even more sales. Retail over this last summer was weak. The majority of Americans have middle, or low range incomes, and they do most of the buying.

Prices of products that are "needs" such as heating fuel are soaring, but what about everything else? The price of jet fuel is up 40% but airline ticket prices are going down. The airlines are finding other ways to push cost to customers. One way is by adding on an extra surcharge to customers that don't purchase tickets online.

The increased cost of fuel affects just about everything by raising the cost of moving products to wherever they will be sold. All things plastic are more expensive to manufacture. Even stock prices have dropped. Rich or poor, everyone is affected, but what will be the outcome? Will oil prices drop before it is replaced? Or will new alternatives be implemented that will make the use of oil obscolete?

1 comment:

Dr. Tufte said...

There is a bit of a macroeconomic slant to this post (which I'd probably never penalize you for, but would like to discourage a little anyway).

One macroeconomic fact that needs clarification is that compensation (wages plus benefits) is outpacing inflation easily, although wages themselves are having some difficulty. Blame health insurance for that one.

An interesting fact about the current run up in oil prices is that it appears to be demand driven. Most of our bad experiences with rising oil prices have been supply driven. Macroeconomists are not quite sure if this price rise will have the same sort of effects.