3/14/2005

Gas Prices are Rising Again

As we all may observe the gas prices have risen again, and that means that other things may become more expensive as well. Groceries have already becoming expensive, but now that it cost more to ship goods price adjustments wil need to be made. Actually sometimes I think the idea of price increases in gas also gives business a good excuse to raise gas prices. At the beginning of fall semester this last year I went to Little Ceasers and inquired why their 5 dollar pizza can only come with cheese and pepperoni and any additional topping was a dollar more. The girl at the counter remarked by stating it was the rise in gas prices. Well dang, they might as well start asking 3 dollars extra to add cheese to bread, and 3 extra dollars to add sauce. However, though that may be an extreme example of a girl that was told to answer a common asked question to make sence to the consumer, I think that a lot of unofficial additions are added to the propositions out of the excuse of rise in gas prices. Cedar has been fortunate thus far. Comparing the prices in the nation, Cedar's prices are on the lower end of the spectrum. For regular unleaded oil, the West Coast is looking at an average of $2.228 per gallon. How do you think that this rise in the price of gas is going to effect consumer spending? This rise will even be larger in the later spring and summer. Do you think that it will effect trips people plan on taking this summer?

6 comments:

Bart said...

I think that its crazy how everything is being blamed on rising gas prices, even though little ceasers charged a dollar for each additional topping before the gas prices really started to rise.

Vincent said...
This comment has been removed by a blog administrator.
Vincent said...

Higher gas prices will affect consumer spending I agree. But let's look at the big picture. Demand for oil is on the rise due to China and other developing countries increased demand. Opec especially the House of Saud are looking long-term by maximizes its revenues and by not increasing supply, driving the price up. Not to mention speculators trying not to lose money on the volatile crude oil markets. And by the time it gets to Little Caesars’ fixed costs for transportation, I believe there is little option for them, but to pass that burden onto the consumer.

Dr. Tufte said...

I am not surprised when rises in oil prices get linked to the rise in price of just about everything else - oil is an important intermediate resource in just about all production processes.

But, I also think a lot of this is a gimmick to make you sympathetic about something that isn't the consumers worry. Vincent has it all wrong at the end of his comment - a business can't always pass an input price increase onto consumers. The extent to which they can do that depends on elasticities.

I am really surprised that Little Ceasar's would say something like this. The market for pizza (especially pick-up, as described in the post) is extremely elastic. Little Ceasar's has almost no hope of passing input prices along to the consumer unless all its competitors are doing the same thing. Can't blame them for trying though - and it probably works sometimes!

Anonymous said...

The price of the "dollar vs euro" and the "price of oil per barrel" from the month W got in office up to today.

Oil 73% increase
The Dollar vs Euro 30% decrease

In reality, oil has only gone up 22% not 73% and should be selling at
something like $36.6 not $52 the difference is that the dollar just does not buy as much.

I am NOT saying that the price of
oil is ONLY driven by the value of the dollar, I am saying that the
value of the dollar is ONE OF THE MAJOR causes of oil price inflation.

Chuck said...

As Dr. Tufte already stated, I was always under the impression that whenever the price of petroleum goes up so does the price of just about everything else. Maybe my views need adjusted. This is a great oppertunity for companies to raise prices. They can now point the finger at transportation costs and OPEC. It's like a "free punch pass" for the market!