A sinking global economy is helping drive down gasoline and diesel prices, providing welcome relief at the pump for many businesses and consumers.
But consumers will have to wait a while longer to see lower prices on everything from flour at the grocery store to pizza at the local fast-food shop. Many business owners who raised prices on products while fuel costs raged higher over the past year say they aren't planning to lower prices just yet.
That's because the overall cost of doing business remains higher for a lot of companies than it was a year ago, and while commodity prices are declining, the cost of many other raw materials remains stubbornly high. Stores are also seeing weaker sales volumes.
"We are still behind the eight ball," said Scott Hunt, the executive manager of family-owned Hunt Brothers Pizza in Nashville, which makes and delivers pizza to convenience stores.
Diesel prices — now about $3.40 a gallon in the Nashville area —are about 10 percent higher than a year ago, according to AAA South, although the price continues to drop rapidly. The average price in Nashville fell by another nickel a gallon for diesel on Friday alone, a survey of area gas stations found.
The price of unleaded gasoline has also fallen more than $1.40 a gallon here in the past month, reaching about $2.46 a gallon on Friday morning, according to AAA South.
Natural gas, electric upThose sorts of numbers have shaved about $52 a day off the cost of gasoline consumption for Aaron Bray, whose Chesley the Cleaner business picks up dirty laundry at area homes and takes it to his Nashville dry-cleaning plant.
But that's little comfort for Bray and other small-business owners, who say they still face dampened consumer demand and higher prices for electricity and natural gas. One bright spot came this week when TVA officials said fuel adjustment charges should drop in January, although they're not sure by how much.
Still, in March, Bray shut down his plant one day a week so he could trim his natural gas and electricity bill after those costs shot up. Now, he has reduced his natural gas and electricity usage by roughly one-third, but his bill has stayed roughly the same at $10,000 a month.
"I had a few profound words when I saw the bill,'' Bray said.
He raised prices for the first time in two years this spring by about 10 percent. He has no plans to reduce them at this point.
Elsewhere, while the cost of cheese, an important ingredient for Hunt Brothers Pizza, has fallen from a record high in late May of $2.29 per pound on the Chicago Mercantile Exchange — to about $1.64 last week — it's still up to 40 cents a pound more expensive than the average from previous years, said Alan Levitt, publisher of Daily Dairy Report, an industry newsletter.
"We're not getting across-the-board price drops," Hunt said.
So, Hunt Brothers Pizza has no plans to lower its $9.49 suggested retail price for a 12-inch pizza, a product that went up in price by 50 cents this summer.
Grain costs remain highCrude oil prices on the world market have fallen nearly 60 percent in the past three months after reaching a high of nearly $150 a barrel on July 11.
FedEx Corp., which reported dwindling profits and rising fuel prices in its most recent quarter, told its customers it was raising overall prices for FedEx Express by an average of 6.9 percent in the U.S., effective Jan. 5, even while reducing its fuel surcharge by 2 percentage points.
The Pasta Shoppe also raised prices earlier this year when the cost of wheat flour, a key ingredient, rose dramatically. Prices went up 50 cents per pound on the Nashville business's themed pasta packages, which include such treats as University of Tennessee orange pasta in the shape of little T's and turkey-shaped pasta for Thanksgiving.
John Aron, who owns the business, said that although the price of wheat flour has fallen 38 percent from a high in December of last year, he still is paying $40 per 100 pounds, more than double what he paid in spring 2007.
Global demand for grain, including ethanol subsidies that encouraged farmers to plant corn instead of wheat, helped push prices sky high. And wheat flour is growing in importance in Aron's budget.
Wheat flour has grown to consuming 24 percent of Aron's revenue, up from
15 percent a year ago. That's far above the average 12 percent of revenue that shipping costs now take.
Aron expects a global slowdown in the economy to push prices for commodities lower, but slower demand isn't good for his business, either. He is particularly worried that consumer confidence fell in October to its lowest level in 41 years, according to The Conference Board, a national business group.
"We will be very cautious with how we close the end of this year,'' Aron said. "We know that the consumer is overburdened."
Oil isn't the only factorBill Ingram, a Lipscomb University economics and finance professor, said there is generally a lag time when businesses can start reducing prices for their products because of declining oil prices and a softening economy.
"Oil is an important price but it's not the only price," Ingram said.
Inflation, which reached 4.9 percent in September over a year ago, is likely to moderate in the months ahead, he said.
But longer-term, in the next year or so, rising inflation will become a bigger threat, Ingram predicted. That's because interest rates are so low, money is so cheap to borrow and the federal government is pumping money into the financial system in an attempt to head off a deeper financial crisis, he said.
"At some point, something has to give,'' Ingram said. "If the economy doesn't expand rapidly, at some point, inflation has to occur."
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