Remember summer when oil prices were so high you needed an extension ladder to deal with them?
That's when a barrel of oil traded for around $150.
Businesses and industries, from airlines to pizza parlors, raised their prices to cover the high cost of gasoline.
"We're sorry," read the signs in supermarkets and retail stores. "But the high price of oil has forced us to increase our prices."
We consumers accepted that logic. We had to. We only had two choices: take it or leave it.
But the price of oil has slid down the ladder since then. Crude oil is now going for less than $72 a barrel. That's more than a 50 percent decrease. So why haven't we seen prices on our daily goods and services cut by one-half or even one-quarter?
It's not just oil prices that have fallen. The prices of agricultural commodities are down by about a third. Wheat and corn prices, for example, have dropped more than 40 percent. Metals like aluminum, copper and nickel have declined by a third or more.
So why aren't these falling prices trickling down to consumers?
Part of the reason is that businesses are still selling inventory that they purchased when prices were sky-high, says Dr. Naphtali Hoffman, a professor of economics at Elmira College.
"The guy who bakes a loaf of bread probably paid for the wheat three to six months ago when it was high," Hoffman explains. "So he's still charging a high price for that loaf of bread to reflect the high price of the wheat."
I accept that. But the baker's expensive wheat stores have to be running out or at least getting stale.
I'm waiting for the price of bread, milk, meat and my Raisin Bran Crunch to come down.
There's also an economic theory involving something called downward price rigidities that is too complicated for me to understand. Basically, it means that prices fall more slowly than they rise, Hoffman says.
There's a big surprise.
I have my own theory. I call it greed. It goes like this: Consumers are used to paying higher prices for everything, so why lower them and not make as much profit?
You can't blame grocery stores and gas stations for the rise in commodity prices. They didn't create the demand, but they met it. Prior to the price hikes, their margins suffered because they couldn't pass on their higher costs to consumers without cutting into the amount of products customers purchased.
I'm cool with that. But I get hot under the collar when I think they are going to make up for those losses by keeping prices high. If that's true, that means inflation may not fall like it is supposed to during a recession.
If anyone tells you we're not in a recession, get that person some psychiatric help immediately.
Not everything is costing us more. Homes and car prices are falling, but that's only because there is a glut of homes and cars. Why? Because consumers can't afford to buy them, because the cost of food, medical care and most everything else is inflated.
The recession is the No. 1 reason that the price of oil and other commodities are down. The recession has slowed global growth and the demand for goods and services. A few months ago, we were engaged in a bidding war with developing nations like China, India and Russia.
But the credit crisis, stock market turmoil and banking fiascos have turned the bidding war into "Go ahead, you take it. I can't afford it."
That's why gas prices in the U.S. have fallen dramatically over the past few weeks. The national average for a gallon of gas dropped to $2.99 on Saturday.
That's great news, but we're entering the winter heating season and I'm shaking in my boots and winter socks because I'm scared and cold. My home thermostat is still set below 60. I'm worried that any money I save in filling my gas tank will be burned up in my furnace.
If the recession has lowered consumer demand for goods, it seems to me that the best way to increase demand is for businesses to lower prices.
In fact, that would make a great advertising campaign. Let's say a store, called Greed R Us, decides it is going to be the first to lower prices. The store could advertise that it's doing it to help the American consumer and American economy. I would think customers would flock to the store, not only for the deals, but in thanks to a patriotic business that wants to help the average American Joe and Jane.
Don't hold your breath, Hoffman says.
"Nobody lowers prices for patriotic reasons or to help out the consumer," Hoffman says. "If they tell you they're doing it to be patriotic, they're lying."
Competition is the only reason that merchants lower prices, Hoffman adds.
If one store drops prices, others will follow to stay competitive.
So who is going to be the first to cut prices?
I'm waiting.
If it doesn't happen soon, there may be no consumers left with enough money to patronize the price-cutter.
